Vodafone says it applied credits to the accounts of all current and former customers affected by the error and that it has "undertaken an extensive programme to contact and reimburse them".
The Commerce Commission, which brought the case against Vodafone, said the telco's terms and conditions said it would stop charging customers on an agreed date or 30 days after they gave notice to end their contracts.
Despite this, Vodafone sent invoices to more than 29,000 customers that included charges beyond the agreed date of termination, the commission said.
"Customers have the right to expect businesses to invoice them accurately and it is vital businesses take care to ensure their billing systems and processes are doing that," Commission competition and consumer general manager Antonia Horrocks said.
"For a large proportion of the affected invoices in this case, Vodafone relied on staff to manually adjust them but did not take adequate steps to ensure that process was being consistently followed," she said.
"As a result, tens of thousands of customers were left out of pocket."
"All businesses need to ensure that their billing systems are robust, and that they are making accurate representations when they invoice their customers," said Horrocks.
Judge Evangelos Thomas, who sentenced Vodafone, said the company's representations were highly careless and that a penalty was justified because the market needs to have faith in the conduct of its major players.
"Vodafone breached the trust that all consumers should be entitled to place in suppliers' representations," Judge Thomas said.
Last month Spark was fined $675,000 after it admitted to misrepresentations in customer invoices and a welcome credit offer it gave customers.
