Accounts Receivable Dispute management: Process & resolution


What you’ll learn


  • Dive deep into the nitty-gritty of dispute management in accounts receivable
  • Understand how efficient dispute resolution could help your company improve cash flow
  • Learn how implementing automation could have a positive impact on your company’s bottom line


Disputes in Accounts Receivables could be a major source of pain for businesses as it affects the company’s cash flow. Unresolved Disputes or inefficient Dispute Management in Accounts Receivables could take a heavy toll on your company’s bottom line. Ergo, a quick dispute resolution while maintaining a positive customer experience might be a balancing act, but ensuring the same is an absolute necessity in today’s day and age.

Dispute resolution

Dispute resolution is the process of resolving any sort of discrepancies that could arise due to inaccuracy or incompleteness of invoices and billing documents.

Customers tend to hold off the payment in case of multiple disputes. If disputes are not resolved quickly, the uncollectible amount owed could hurt a company’s cash flow resulting in a direct financial loss of the company. Therefore Dispute resolution could also be defined as a series of steps required to resolve disputes between parties effectively so that the payment owed to a vendor is not jeopardized.

Types of disputes

Before planning strategies to resolve disputes quickly and efficiently, one must first get acquainted with the various types of disputes. They are as follows:

  • Pricing Dispute: Dispute that arises due to the difference in pricing between the payment that is charged and the one that was agreed upon by both the parties.
  • Quality Dispute: Dispute that arises when the quality of the product or service billed on an invoice is in question.
  • Administrative Dispute: Dispute that arises due to missing or incorrect documents.
  • Unaccounted Goods Dispute: Dispute that arises due to the billing of goods or services unaccounted for.
  • Double Billing Dispute: Dispute that arises when delivery is billed twice by mistake.

Deduction in accounts receivable

A deduction in A/R is the amount that the customer does not pay in full for certain goods and services due to various reasons such as damaged goods, delay in shipments, billing mistakes, or any other reasons.

Dispute management process

The traditional dispute resolution process is prone to errors and involves a lot of manual and redundant tasks that eat up most of an analyst’s work time. Let’s understand the steps in detail.

Step 1: Receiving Dispute Cases

An analyst receives dispute tickets from either the client or a dispute case from the accounts department.

Step 2: Tracking And Prioritizing The Cases

The analyst then logs in the dispute into a tracking system and prioritizes the cases in the order of importance based on the dispute reason code.

Step 3: Data Aggregation

The analyst pulls out all the relevant information to identify the right stakeholders for the invoice.

After identifying stakeholders, the analyst manually researches and analyses the dispute at a fundamental level. The analyst then gathers all the documents related to the invoice, such as Proof of Delivery (PoD), Bill of Lading (BoL), order invoice, sales invoice, tax receipt, and other documents related to the order.

Step 4: Data Request

In case of some missing documents, the analyst communicates with the client and requests additional information that might help them resolve the dispute quickly.

Step 5: Dispute Resolution

After gathering all the necessary documents, the AR analyst researches the reason and validity of the dispute. The analyst then determines how to handle the disputed item; should it be collected, refunded, or written off.

Step 6: Getting Approval

If the dispute is a valid one, the AR analyst might have to get approval from superiors to accept the same. This involves another round of manual and redundant steps that delays the resolution.

Step 7: Following Up With Customers

If the dispute is invalid, the analyst sends a manual correspondence to the client informing about the invalidity of the dispute and further asks for clarification or withdrawal of the same.

On the other hand, If the dispute is valid, the analyst engages with the client and issues either a credit memo or a debit memo for future use by the client.

Step 8: Syncing Changes With ERP And TPM Systems

Depending on the status of the dispute, the analyst informs the accounts department of the same and asks them to update the status of the invoice into the ERP. After the necessary changes, the account status for the client gets closed.

Step 9: Report Generation

Manual reports are generated based on the research that could help the managers and executives measure the deductions functions. Unavailability of centralized real-time data makes the report generation even more time consuming and error-prone.

Challenges

The traditional Dispute management process involves a lot of challenges because of which companies around the world are losing too much time and money in resolving disputes. Some of the key challenges are:

Challenge 1: Cost-intensive

The AR teams have to deal with a large number of dispute cases and resolving these cases quickly sometimes require additional costs. Moreover, write-offs of unresolved disputes could cause revenue leakage that could end up hurting the company’s bottom line.

Challenge 2:Time-consuming

Analysts spend multiple hours in gathering data and evidence to check the validity of a dispute. Research shows that around 15-20% of disputes are not valid and consume a high percentage of an analyst’s work time that could have been used on other high-value functions.

Challenge 3: Siloed-operations

Efficient Dispute resolution requires the collaboration of multiple departments to verify the validity of a dispute and to find the source of origin. Siloed-operations tend to hinder inter-team collaboration resulting in delaying the dispute resolution process.

Challenge 4: Intensive Manual Process

Limited functionalities of legacy ERPs and the absence of standardized processes make dispute resolution a highly manual process. Tasks such as fetching data from multiple portals, to and fro communication with clients for missing documents, gathering of data from internal and external sources, make dispute resolution highly manual in nature.

Challenge 5: Lack of visibility

Unavailability of real-time data and the absence of centralized information is responsible for little to no visibility into the flow of information outside and within the organization. This makes it difficult for analysts to have a clear understanding of the disputes and impedes them from making an educated decision.

Solution – HighRadius Deductions Cloud

Highradius Deductions Cloud enables businesses to automate the entire dispute management process and enhances the dispute resolution component of an existing ERP or receivables management solution. Automation of dispute management in accounts receivables could help your company reduce:

  • DSO
  • Risk of bad debt write-offs
  • Cost and time for dispute resolution
  • Risk of a negative impact on customer experience

Learn more about the benefits of automation and how the seamless integration of cloud-based solutions with dispute management in accounts receivables could help you achieve the ultimate organizational goal- More Revenue with Reduced Risk.

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