Issuing An Invoice Shall Be Prior to Making A Payment?

Company A and Company B had signed a “Sales Contract”, in which it had prescribed that Company A would purchase a set of machine from Company B. Later, the machine was delivered to Company A, but Company A refused to make the payment. After more than one year delay, Company B filed the dispute to the court, and required Company A to make the payment and undertake the late payment penalty. Company A defended that the contract had prescribed that the payment should be made upon receiving the invoice. Because Company B had not issued the invoice yet, Company A should not be deemed as breach of contract. Finally, the court ordered Company A to make the payment within 30 days upon receiving the invoice issued by Company B, but rejected the Company B’s request on the late payment penalty.

In practice, it is not rare that many sellers fail to obtain the late payment penalty or interests due to the agreement on the duration of issuing an invoice. There are also many disputes related to the order of issuing an invoice and making a payment.

The reason is that the relevant laws and regulations, such as the “Provisions on the Use of VAT Invoices”, have not prescribed the sequence of issuing an invoice and making a payment. Where both parties failed to make an agreement on the sequence, the disputes would arise. For example, the buyer may refuse to pay with the excuse that the seller has not issued the invoice; or the seller may refuse to issue the invoice in advance, because once the buyer refuses to make the payment, the seller would undertake the tax expenses; or the buyer may take advantage of the invoice with other elements to prove that it has made the payment, and etc.. In view of these, it would be better for both parties to make an agreement on the sequence and delivery of the invoice in the contract.

In order to avoid the risks for the seller, just like Company B in the case hereinabove, after the relevant issues have been prescribed in the contract, both parties shall follow up with the implementation of such issues.

Normally, it is easy for the buyer to prove that it has made the payment, because the payment among companies may be made by bank transfer. But it is difficult for the seller to prove whether the buyer has received the invoice. For example, the buyer insists that it has not received the invoice; or the buyer insists that it has received the express, but there is no invoice inside, and etc.. In view of this, for the seller, it would be better to reserve the relevant evidence on the delivery of the invoice.

Where both parties have agreed on issuing the invoice prior to making the payment, the seller could require the buyer to sign in person when the invoice has been delivered to the buyer. Or the seller could describe the serial No. and quantity of the invoice on the express bill when the seller sends the invoice via the registered mail or express. The seller could use another smarter method, which says the seller could send an email to the buyer after the invoice has been delivered via the express. The email could mention the serial No. and quantity of the invoice, the name of the express company, and the serial No. of the express. If any disputes arise, the seller could use the email and express bill to prove the delivery of the invoice, which may reduce the risks of delivery failure.