Accounts Receivable Dispute management: Process & Resolution

Introduction

Accounts receivable disputes are a common occurrence for businesses of all sizes, and they can be a significant source of pain for finance and accounting teams. These disputes can tie up resources, delay payments, and ultimately impact the company’s cash flow and 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.

What is Dispute Management?

Dispute management is the process of resolving disputes related to 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 in order to cash can help businesses reduce the impact of disputes on cash flow and improve customer relationships.

Invoice Dispute Management

Invoice dispute management refers to the process of handling and resolving disputes related to invoices, 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 disputes are not resolved quickly, 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 the 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.

Dispute Management Process

The traditional dispute resolution process is often time-consuming, error-prone, and involves numerous manual and redundant tasks that can hinder an analyst’s work efficiency. The following steps are typically 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.

Challenges in Traditional Dispute Management Process

Dispute management in accounts receivable is a crucial process for any business, but the traditional process is fraught with challenges that can result in significant losses for companies. In order to successfully manage disputes, organizations must overcome the following key challenges:

1: Cost-intensive

Managing disputes can be a costly affair, particularly when resolving cases quickly requires additional resources or outsourcing to external partners. Write-offs of unresolved disputes can also result in revenue leakage, hurting the company’s bottom line. To avoid such losses, companies must invest in robust dispute resolution processes that are efficient and cost-effective.

2: Time-consuming

Dispute resolution can be an incredibly time-consuming process, as analysts often spend hours gathering data and evidence to verify the validity of a dispute. Research indicates that up to 20% of disputes are not valid, which can consume a significant portion of an analyst’s work time. To maximize efficiency and productivity, organizations need to implement streamlined dispute resolution processes that reduce the amount of time required to validate a dispute.

3: Siloed-operations

Successful dispute resolution requires collaboration across multiple departments to verify the validity of a dispute and identify its source. However, siloed operations can hinder inter-team collaboration, leading to delays in the dispute-resolution process. To overcome this challenge, organizations must promote cross-functional collaboration and break down silos to ensure everyone is working towards the same goals.

4: Intensive Manual Process

Dispute resolution is often a highly manual process that involves fetching data from multiple portals, communicating back and forth with clients to obtain missing documents, and gathering data from internal and external sources. The limited functionalities of legacy ERPs and the absence of standardized processes only add to the complexity of this process. To address this challenge, organizations must consider automating certain aspects of the accounts receivable dispute resolution process to minimize manual work.

5: Lack of visibility

The unavailability of real-time data and the absence of centralized information can result in a lack of visibility into the flow of information within and outside the organization. This makes it difficult for analysts to have a clear understanding of disputes and impedes their ability to make informed decisions. To address this challenge, organizations must implement robust data management and reporting processes that provide real-time insights into dispute resolution activities.

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• Get the right backup deduction data for validation
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• Automate correspondence for faster deductions resolution

HighRadius’s Deductions Cloud 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 on Dispute Management

What is a disputed invoice?

A disputed invoice is an invoice that has been challenged or questioned 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.

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.