Disputes damage the AR process. They cost employees time, impact financial performance and impair customer experiences. It's no wonder that 55% of AR professionals say managing disputes is their hardest task.
In a 2021 Atradius study, it was found that 47% of all B2B sales in the US were affected by late payments — and disputes were identified as a key contributing factor. Today, there remains a problem with how businesses manage this area of accounts receivable.
In 2021, late payments affected 47% of all B2B sales in the US.
So, what does effective dispute management look like? Clearly, one part of it involves resolving problems quickly so the payment can be completed. But this can only be achieved if the customer experience element is fulfilled, as unhappy customers are unlikely to pay on time. The rub? It's extremely difficult to strike the right balance.
What are invoice disputes?
A dispute can be defined as any issue that will prevent payment of all or part of a bill. They happen at the time of invoicing, prior to any payment being made.
No matter how good a company is or how many satisfied customers it has, there is always the potential for disputes. Effective practices and high standards of service can minimize this risk, but there may still be occasions when the company and its customers reach an impasse.
➜ Tackle Invoice Disputes With the Dispute Toolkit
7 of the most common reasons for disputes
Pricing
A difference in pricing between the agreed amount and the final charge.
Quality
The product or service billed on an invoice is in question, or the product has been damaged in shipping.
Administrative
Documents are missing or incorrect.
Payment terms
Other pricing terms such as due dates or a partial payment plan may be in dispute.
Missing or unaccounted goods
Items have not been received or accounted for — but remain on the invoice.
Double billing
A delivery is billed twice by mistake.
Returns or change orders
The latest invoice doesn't reflect a change in the order or account for product returns.
Every time an invoice is in dispute, it puts the payment at risk and poses a threat to cash flow. On top of this, resolution costs businesses time, money and resources (AR, legal and procurement team members are involved) to sort through the issue and come to terms with the customer.
Featured Resource: The Dispute Toolkit
The dispute management process
Traditional dispute management is time-consuming and costly. Both in terms of it not being effective enough to mitigate late payments, and also a drain on company resources.
Let's examine the steps involved and their inherent challenges.
STEP 1: Receiving the dispute cases
Action: Dispute tickets are sent to the AR analyst by the accounts department or customer.
Challenge: This step is reliant on your team or customer manually sending the disputes. People can forget — or do this late — which can cause delays.
STEP 2: Logging and tagging
Action: The analyst records the disputes in the company's tracking system and tags each case or ticket according to their importance, depending on the dispute reason code.
Challenge: This is a manual process, completed without customer involvement. Customers lack visibility and may therefore raise issues later on, which extends the time to resolution.
STEP 3: Aggregating data
Action: For each disputed invoice, all relevant information must be gathered for review (such as order number, bill of lading or tax receipt) and any appropriate stakeholders must be notified.
Challenge: Phew! That's a lot of work. This information lives in different systems such as ERP, accounting and CRM. Collating and sharing it with stakeholders takes time and effort.
Dispute data aggregation can be a frustrating experience...
STEP 4: Requesting additional information
Action: Where there are missing documents, the analyst contacts the customer to request additional information that's needed to resolve the dispute.
Challenge: Documents are often missing due to the manual nature of the process and the lack of customer involvement. Contacting customers via email or phone adds time to the process — and can frustrate them.
STEP 5: Resolving the dispute
Action: Once they have all the required documents, the analyst researches the validity of the filed dispute so that they can determine the best course of action. This may be a refund, collection or a write-off.
Challenge: This takes longer than it should. Identifying the root cause of a dispute is difficult. There's no easy way to compare cases alongside one another to identify commonalities and action items in bulk.
STEP 6: Requesting further information
Action: If the dispute is found to be invalid, the analyst will contact the customer. They inform them of the dispute's invalidity or seek additional clarification or even a withdrawal of the dispute.
Challenge: And we're back to the customer, who has had very little insight into the process. They may be surprised that their dispute has been identified as invalid.
STEP 7: Seeking approval
Action: If the analyst deems the dispute invalid, they'll proceed to get approval from stakeholders.
Challenge: The analyst may need to re-explain the dispute which adds extra time to the process, irking the customer and delaying the payment further.
STEP 8: Issuing a credit or debit memo
Action: Once the validity of the dispute has been approved, the customer will be notified that they will be issued a credit or debit memo. At the same time, analysts will contact the accounts department to have the invoice status updated in the company's ERP.
Challenge: Again, reaching out to the customer takes time. Manually contacting the accounts department to update the invoice status is inefficient and increases the likelihood of data entry errors.
Featured Resource: The Dispute Toolkit
Challenges with dispute management
This process is time-consuming and costly. Multiple departments are involved, hunting down, inputting and exchanging information. This means they're taken away from their priority tasks which are often revenue-generating ones, such as collections.
Departments are also often guilty of working in silos. Why? Because teams use different tools to manage data. Finance relies on ERP systems such as NetSuite or Microsoft Dynamics GP, while others are dependent on the company's CRM. This means information has to be passed back and forth manually, which is not only inefficient but also prone to errors. With nobody taking advantage of real-time data, it's difficult to quickly identify the root causes of disputes. This creates delays which can eventually lead to write-offs and revenue leakage.
Customers also have very little visibility into what actions are taken in the process. This increases the likelihood of them not accepting the decisions that are made and subsequently prolongs the time to resolution.
To pour more salt into the wound, information is stored within disparate systems which means the AR analyst is working tirelessly to source data required to manage the dispute. And customers and stakeholders are reliant on updates from the AR professional which is inefficient. The process also doesn't provide an opportunity for parties to work collaboratively, which limits the chance of there being a mutually satisfactory outcome. This is bad for business.
4 features to master dispute management
The right AR automation tool helps you optimize your dispute management strategy to boost your bottom line. This is achieved through four key features:
- Powerful root cause analysis: Line item disputes are captured on a user-friendly, centralised dashboard that can be accessed across the business. This eliminates data exchange and increases granularity in dispute reporting, providing improved insight.
- Flexible functionality: An unlimited number of supporting files can be attached to any dispute and made available to the end user. This gives team members immediate access to all necessary supporting documentation.
- Customisable escalation options: Escalation triggers can be automated depending on your business' service legal agreements (SLAs). These can be tailored in multiple ways, for example how many days a dispute remains open until it's flagged directly to management.
- Dedicated workspace: All open disputes can be viewed in a single window, allowing the resolver to action items in bulk. This leads to quick resolution directly from the workspace, without having to click into the customer record each time.
Dispute management doesn't have to be such a nightmare. Choosing the right AR automation tool can transform dispute resolution into a dream come true.
