Dispute Management – Nipping the Problem in the Bud

Without a clearly set out dispute management process, non-payment is a thorn in a company’s side. Disputes can drag on for too long, and carry the risk of snowballing and affecting the bottom line. It’s important, therefore, to view customer dispute management and resolution as a problem that needs an effective contingency process, one that is put into practice as soon as the company is made aware of a dispute.

Benefits of an Effective Dispute Management Processes

Reducing the number of disputes
Issuing credit notes on aged transactions that might have been collectable if managed earlier causes leakage in revenue. By getting a firm handle on the deductions that are coming through the organisation and addressing these quickly, the organisation may be able to prevent this revenue leakage. The earlier an issue is addressed, the more likely the customer is to respond and take action with helping to resolve the issue.

DSO reduction
The percentage of aged receivables attributed to disputes can be as much as 20-30%. By creating visibility for disputes and expediting the dispute process, and by removing resolved invoices for the A/R ledger through necessary credit notes and/or payments, companies can remove several days from their existing days sales outstanding (DSO) levels.

Improved customer service
As long as customer disputes are occurring, organisations are sure to face declining customer service levels. Not only do customers become frustrated when organisations fail to address their issues in a timely fashion, failure to resolve the issue prevents customers from releasing payment for the disputed transaction, or even worse, the customer may withhold payment for non-disputed invoices as well. This not only impacts a company’s cash flow, but also having erroneous invoices on the books creates account reconciliation issues. When companies take action quickly to address customer issues, the result is not only quicker payments, but also happier customers.

Lower costs
Managing customer dispute issues, issuing credit notes and refunds, and investigating disputes all costs money. By minimising disputes the associated back office transactional costs can be lowered.

What Leads to a Dispute?

If a company is aware of the common reasons for customer disputes, it can target the problematic areas and the departments from which they originate. Reasons and origins can include:

  • Order entry and processing errors, from order processing.
  • Shipping and returned goods, from order processing.
  • Pricing errors, from sales and quote management.
  • Promotion and rebate claims, from sales and quote management.
  • Billing, from invoicing.

It is clear that most disputes are created upstream in the operational areas.

When Does a Dispute Arise, and How Should It Be Logged?

A dispute might be discovered during normal collection contact activity, such as during a customer call, or when a customer purposely underpays. It’s important to establish specific guidelines for recording disputes, and then passing these to the department responsible for resolution. The dispute, and the following information, should be logged:

  • Customer number and name.
  • Invoice number.
  • Dispute reason (use a code).
  • Disputed amount.
  • Person in charge of resolving dispute.
  • Date dispute identified.
  • Estimated resolution date.
  • Any other notes.

It’s important that company personnel understand the importance of resolving disputes in a timely manner – both upstream and downstream. Organisations that are aware of the necessity to reach a resolution quickly are the most effective at minimising the number of disputes, and their negative impact.

Clear ownership and accountability across all departments of a company can make the process of resolving disputes easier and more efficient; a culture of cross-departmental cooperation is crucial to this. This is one of the biggest challenges facing organisations today.

Eliminating and Preventing Disputes Before They Happen

Prevention is, of course, better than cure. Root cause eradication is the process of understanding why disputes are occurring in the first place – and preventing them from doing so in the future. Analysis of previous disputes can identify where problems are occurring, and can reveal solutions for minimising – hopefully even eliminating – those issues.

Some of these causes could include:

  • Pricing errors, such as pricing tables not being updated in the ERP system or the processing of purchase orders with incorrect pricing.
  • Customers’ consistently short-paying invoices, due to noncompliance to freight policy.
  • Missing purchase orders, due to customer service error.
  • Customer service representatives not following order policy (indicating a training requirement).

Time Frames

The time it takes to resolve a dispute is one of the most critical elements; the longer a dispute lays unresolved, the less chance there is of receiving due payment, which could lead to an A/R write-off.

The time frames vary on the issue; while a missing invoice can be resolved in hours by providing another copy, other disputes, such as those involving quality problems, will require filing claims, warranty return, and shipping of a new product. In these cases, resolution can take weeks or months.

Realistic time frames for resolution need to be established from the off, both for customers and departments. However, it’s not uncommon for resolution to exceed the time frame, and for this reason there should also be a well-defined escalation process to move things along – one ideally involving the intervention of other team members who can drive the decisions needed to close the dispute. For example, a manager could establish a pricing agreement or authorise a refund. It is vital that resolution time frames and escalation protocols are clearly thought-out, and adhered to.

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