Car damaged, neighbor want us to pay as he 'thinks' our 5 year old did it.?

Our neighbour's car was scratched at some point yesterday evening. He thinks it was done by my 5 year old and his friend (who lives in the same cul-de-sac) as they had scratched our car, and his dad's car earlier this year. The parents of the other child say he wasn't out at the time it is alleged to have happened (no one is exactly sure when it happened) but my child came to their door around the time the neighbour said the damage happened. Having spoken to my child, I am convinced he did not do the damage and in fact didn't know anything about it when I questioned him.The neighbour is not happy with this and wants us to pay for the damage. I'm not sure what to do next as he has said 'this isn't over!' I suggested that he contact his insurance company which he has told us he has no intention of doing. I don't want to fall out with a neighbour and wouldn't mind paying for the damage if one of my children had caused it but I really believe that he is being falsely accused. I'm not one of these parents who thinks that their children can do no wrong, I normally blame my own kids before anyone else's but I don't think I'm wrong in this case. What should I do?