Accounts Receivable Dispute management: Process & Resolution

Introduction

Accounts receivable disputes pose a common challenge for businesses, irrespective of their size. These conflicts often result in delayed payments, consume valuable resources, and significantly impact a company’s cash flow and profitability. Efficiently managing these disputes is pivotal.

In smaller businesses, individuals handling payment collections also navigate the resolution of these disputes. They meticulously track instances where customers raise payment issues and work towards swift resolutions.

Striking a balance between prompt dispute resolution and maintaining customer satisfaction is essential in today’s business landscape. Let’s delve into mastering the art of dispute management to ensure smoother business operations.

What is Dispute Management?

Dispute management is the process of handling conflicts that occur in Accounts Receivable (AR) regarding customer invoices or payments. This may involve investigating the cause of the dispute, communicating with the customer or relevant parties, and taking appropriate actions to resolve the issue.

Effective dispute management can help businesses reduce the impact of disputes on cash flow and improve customer relationships.

Importance of Dispute Management

At the heart of any successful business lies its approach to addressing customers’ complaints and discrepancies in invoices and billing documents. With effective dispute management, you can handle and strategize resolutions for issues related to missing or delayed payments, credits, or disputed invoices.

Not only does this aid in the timely recovery of past dues, but it also enhances transparency in communication and collections processes, enabling better interpretation of your business’s financial data and ultimately improving cash flow.

What Is Invoice Dispute Management?

Invoice dispute management refers to the process of addressing and resolving invoice-related issues, such as discrepancies in pricing, quantity, or delivery. These disputes can arise due to various reasons, such as miscommunication, errors, or misunderstanding of terms and conditions.

Customers tend to hold off the payment in case of multiple disputes. If the invoice dispute resolution process is not efficient, the uncollectible amount owed could hurt a company’s cash flow resulting in a direct financial loss for the company.

Types of Disputes in Accounts Receivable

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

The 9 Steps of the Dispute Management Process

The dispute management process is a structured approach employed by businesses to handle and resolve issues related to discrepancies in invoices, billing, or payments. Here are the key steps involved in the dispute management process.

Step 1: Receiving Dispute Cases

An analyst receives dispute cases from either the client or the accounts department. The disputes can be related to various issues such as billing errors, damaged goods, delays in shipment, or any other issues.

Step 2: Tracking and Prioritizing the Cases

The analyst logs the dispute case into a tracking system and prioritizes the cases based on the importance and urgency of the dispute. The prioritization is based on the dispute reason code and the potential impact on the cash flow.

Step 3: Data Aggregation

The analyst gathers all relevant information related to the invoice and identifies the right stakeholders for the dispute. This includes documents such as Proof of Delivery (PoD), Bill of Lading (BoL), order invoice, sales invoice, tax receipt, and other related documents.

Step 4: Data Request

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

Step 5: Dispute Resolution

After gathering all the necessary information and documents, the analyst researches and analyzes the dispute at a fundamental level. The analyst then determines how to handle the disputed item; should it be collected, refunded, or written off?

Step 6: Approval

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

Step 7: Follow-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 in 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. The unavailability of centralized real-time data makes report generation even more time-consuming and error-prone.

The traditional dispute resolution process, comprising numerous steps, tends to be time-consuming, error-prone, and laden with manual and redundant tasks, which can impede an analyst’s efficiency.

Dispute Management Challenges

Managing invoice disputes in accounts receivable (AR) is crucial for financial operations, yet it frequently presents notable challenges. Businesses often face obstacles due to a lack of real-time visibility and limited access to dispute details, which can hinder the resolution process within collections.

To navigate these challenges effectively, understanding the key hurdles in dispute management is essential. Here are some of the critical challenges involved.

1. Dispute Tracking Complexity : It becomes extremely difficult for collectors to keep track of every dispute without a proper strategy for dispute resolution. Erratic dispute resolution strategies end up impacting past-due recoveries, thus increasing bad debt.
   

   Recommended Reading: Bad Debt: What Is It, How to Calculate, and Tips for Managing It.

   
   
2. Laborious Deduction Processing : In many cases, collectors have to filter and search disputes for each customer manually. After drawing deductions from those disputes, the collectors then inspect and validate those deductions and transfer them to a deductions analyst. As you can tell, this is an exhausting and time-consuming process, as collectors have to manually perform these tasks for hundreds or thousands of customers, which further delays past-due recovery.
3. Clarity and Traceability Challenges: The lack of clear and reliable audit trails can lead to confusion and hinder the ability to trace the progression of disputes, potentially complicating the resolution process further. It is essential to establish a transparent and consistent system for maintaining audit trails in collections to overcome this challenge.
4. Limited Team Visibility: Several dispute resolutions need the sales or warehouse teams to get involved. In most cases, these teams get limited access to perform particular tasks to ensure dispute resolution. This access is mostly provided manually via email, and there is no organized way for the accounts receivables team to track or monitor the access provided to sales/warehouse teams. 

In cases where businesses use paper documentation, the whole process can be taxing and become a considerable auditing concern at the end of the quarter.

Benefits of Automating Dispute Management

Now that you’re familiar with the challenges in dispute management, understanding how to address them becomes crucial. Automation plays a pivotal role in effectively resolving disputes. Embracing automated dispute management offers numerous advantages for businesses:

1. Reduced Errors : Automation minimizes manual handling, reducing the chances of mistakes and inconsistencies in the resolution process.
2. Time Savings : Automated systems handle tasks such as document generation, data analysis, and communication, leading to faster dispute resolution and efficient resource allocation.
3. Enhanced Transparency and Accountability : Automated systems maintain a detailed record of actions taken during the resolution process, promoting fairness and trust among all parties involved.
4. Valuable Insights : Through data analysis, automated systems can identify dispute patterns and trends, enabling businesses to proactively prevent future conflicts and make informed decisions.
5. Improved Efficiency : Streamlining the dispute resolution process with automation allows businesses to allocate resources more effectively, leading to increased productivity.
6. Cost Reduction : By reducing manual labor and streamlining processes, automating dispute management can help businesses save on administrative costs.
7. Enhanced Customer Satisfaction : Faster dispute resolution and transparent processes contribute to improved customer satisfaction, strengthening relationships with stakeholders.
8. Compliance and Audit Trail : Automated systems ensure that all actions and decisions are recorded, facilitating compliance with legal requirements and creating an audit trail for future reference.
9. Consistency in Decision-Making : Automation ensures that disputes are handled consistently according to predetermined rules and guidelines, minimizing bias and subjective decision-making.
10. Streamlined Communication : Automated systems facilitate communication between all parties involved in the dispute, ensuring clear and timely information exchange.

In short, by leveraging automation technology, businesses can optimize their dispute resolution processes and foster positive relationships with stakeholders.

Here’s How HighRadius’s AI-Powered Platform Can Solve Your Deduction Challenges

HighRadius’ Deduction Management Software is an innovative solution that enables businesses to automate the entire dispute management resolution process, saving time and reducing costs associated with manual processes. With the power of AI-based dispute validation and automated research for both trade and non-trade deductions, businesses can prevent revenue leakages, improve net recovery rates, and reduce DDO.

Here are some key benefits of HighRadius’s Deductions Cloud:

• Get the right backup deduction data for validation
• Faster, automated research for trade and non-trade deductions
• Improve net recovery with AI-based dispute validation
• Automate correspondence for faster deduction resolution

HighRadius Automated Dispute Management Software offers businesses the ability to identify and resolve invalid deductions, reducing the risk of bad debt write-offs and negative impacts on customer experience. With faster, more efficient dispute resolution, you can achieve the ultimate organizational goal: more revenue with reduced risk.

Don’t let traditional dispute management processes hold your business back – upgrade to HighRadius’s AI-powered platform and streamline your deductions management today.

FAQs

1. What is a disputed invoice?

A disputed invoice is an invoice that has been challenged by a customer due to discrepancies in the amount charged, the goods or services provided, or other issues. This can lead to a disagreement between the customer and the supplier and may require further communication and resolution.

2. What is an example of an invoice dispute?

An example of an invoice dispute could be a customer receiving an invoice for a service they did not receive or for an amount that is different from what was agreed upon. Another example could be a customer receiving damaged or defective goods and disputing the invoice until the issue is resolved.

3. What is the process of dispute management?

Dispute management involves identifying, investigating, and resolving issues through effective communication and documentation to reach a satisfactory resolution. By following a structured process, organizations can efficiently resolve disputes to ensure operational smoothness.

4. What is alternative dispute resolution and is it effective?

Alternative Dispute Resolution (ADR) is a method for resolving conflicts outside of the traditional courtroom setting. It includes techniques such as mediation and arbitration. It is a faster, cost-effective method, offering flexibility and effectiveness beyond traditional litigation.

5. What is arbitration and dispute resolution?

Arbitration is a method of dispute resolution where a neutral third party, the arbitrator, makes a binding decision after hearing both sides of a dispute. It provides a faster and less formal alternative to traditional litigation for resolving conflicts.

6. What are the dispute management mechanisms? 

Dispute management mechanisms involve strategies and systems that businesses employ to handle and resolve conflicts or discrepancies arising in financial transactions or agreements.

7. What are the objectives of dispute management? 

The objectives of dispute management include efficiently resolving conflicts, maintaining positive customer relationships, safeguarding financial integrity, and ensuring timely and accurate payments.

8. What is the most common method used to resolve disputes?

Negotiation is often the most frequently used method to resolve disputes, involving parties discussing and finding a mutually acceptable solution without involving external authorities.

9. What are the 4 dispute resolution processes?

The four primary dispute resolution processes are negotiation, mediation, arbitration, and litigation, each offering different approaches to resolving conflicts or disputes.