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Not every invoice gets paid cleanly. A payment can fail, an invoice can go overdue, or a customer can dispute a charge and claw the money back. Lago treats each of these differently, and only some of them touch revenue.

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Failed payments

A payment that fails or is declined does nothing to revenue. The service was still delivered, so the revenue stays recognized, and the invoice stays as an outstanding receivable. Lago books an accounting entry only when a payment succeeds. A failed attempt is just an attempt.

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Overdue invoices and bad debt

When an invoice passes its due date unpaid, Lago books it as a bad debt. This doesn’t remove the recognized revenue. It records, separately, that the receivable may not be collected. Lago writes off the full unpaid amount, not a fraction of it. The moment the invoice goes overdue, its entire net (pre-tax) receivable moves to bad debt. If the customer pays later, that write-off is reversed in full and the cash lands.
This is a deliberate design decision for now. Standard practice is to hold an estimated allowance: a percentage of receivables you expect to lose, sized from aging or historical collection rates. Lago doesn’t estimate. At overdue, it treats the whole invoice as uncollectible (a 100% write-off), then reverses it in full if payment arrives.The practical effect: your bad-debt line moves in full invoice-sized steps, not smooth allowance percentages. An invoice that goes overdue and is paid a week later will show a full write-off followed by a full reversal. Recognized revenue is untouched throughout.
A customer was invoiced $1,000 plus $200 tax for January service and never pays. The invoice goes overdue on February 15. The write-off is based on the net (pre-tax) unpaid amount, because the tax is owed to the authority regardless of whether the customer pays.

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Disputes lost (chargebacks)

A lost dispute is different: the money is actually pulled back out of your account by the payment processor. Because cash has left, Lago reverses both the revenue and the tax for that invoice, against cash, on the day the dispute is lost. This shows up as contra-revenue in the period the dispute is lost.

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What this means for your reports

  • Failed payments don’t appear in revenue at all.
  • Overdue invoices are written off in full to bad debt in the Statements without changing recognized revenue, and reversed in full if payment arrives.
  • A lost dispute reduces recognized revenue in the period it’s lost, visible in the Recognized Revenue report and itemized in the Journal Entry Details.