If You Care about Cash Flow, Consider the Impact of Customer Disputes

Three Key Questions to Ask Yourself about Customer Disputes

Cash may be king, but for finance teams there’s an equally precious asset to consider — customers. More than ever, understanding customer needs and behaviors is critical to ensuring stability in key processes ranging from onboarding and invoicing to remittance and retention. And one of the best sources for feedback on those processes is customer disputes.

Disputes: A Normal Consequence of Business

Although the term “disputes” may have a negative connotation, they are a typical business occurrence. While they come with the territory, disputes and dispute management aren’t necessarily priorities within technology and digital transformation projects. That’s concerning, as anecdotally accounts receivable (A/R) and collections managers believe account delinquency and late payments were on the rise even before the unparalleled crises of the past few years

According to The Global Legal Post earlier this year, “Some 32% of senior legal and risk professionals at companies with at least $500 million of annual revenue … reckon disputes volumes will increase over the coming 12 months as the anticipated wave of COVID-19-related litigation begins to be reflected in court filings.” And thanks to current market volatility, shifts in labor, and a panoply of natural disasters, A/R and collections managers are likely to see further increases in disputes and deductions.

Manually managing disputes can be time-consuming and labor-intensive. Not every dispute is legitimate, so companies must research the claim. Customers submit tickets for the dispute and supply backup documentation for their claim. Then A/R and collections staff may spend weeks researching and validating the claim, rendering an adjudication, applying a credit or debit memo, and adjusting the bill and the books.

Because this cycle never stops, the demands on A/R staff can become overwhelming. But efficient dispute management is vital to customer retention, portfolio health, and cash flow. To help make crucial decisions about the time and resources to be dedicated to dispute management, Dun & Bradstreet recommends that treasury, credit, and A/R teams answer these three key questions.

#1. What Are Disputes Costing You?  

In a worst-case scenario, customer disputes may result in deductions or bad debt; lower customer retention rates; diminished cash flow; and higher reputational risk among customers, peers, and suppliers.

Depending on the nature of the dispute, it can also entangle multiple resources across the finance team – as well as sales, product, operations, and even the C-suite – in a time-consuming investigation. It’s also not unusual for legal counsel to be called upon for more formal guidance.

In addition, disputes may exacerbate the impact of recruiting and retention trends. Where A/R and finance teams were already lean or highly specialized, the Great Resignation has intensified competition for talent and created vacancies for specific financial management skill sets. The increased pressure on remaining staff may lead to performance issues or even burnout. With fewer resources to assist, dispute investigations may stall, furthering customers’ frustration and fueling additional complaints, longer delinquency, and a potential loss of trust

Given this context, seeing any upside to customer disputes can be difficult. But keep in mind that dispute claims can provide visibility into operational complications or threats whose potential damage may reach far beyond your relationship with the customer. For instance, a customer dispute related to a missing shipment may reveal undetected supply chain risks that can impact finance as well as multiple business functions, sales and cash flow forecasts, and even revenue projections.

#2. Where Do Challenges Arise More Frequently?

Much has been written about the connection between customer disputes and communication. Some in the industry point to an erosion of communication quality and volume due to increasing technology and data challenges, staffing issues, and in some cases, lingering approaches related to payments.  

While technology can help cure some of the aches and pains, it can also add complexity to A/R processes.

An industry report earlier this year indicated that almost 50% of organizations are planning or already have started to acquire or upgrade an ERP system, and the biggest influencers in purchasing ERP software are finance and accounting (23%) and IT department employees (23%). However, A/R and collections managers find that ERP systems can lack reports and tools for developing a wide range of workflows needed to resolve very diverse disputes. ERP systems may also lack certain functionality that can accelerate dispute resolution.

In addition, the A/R staff may still be entering customer data manually and maintaining it outside the ERP system. In one study of corporate A/R managers, a full 60% admitted to being completely or somewhat dependent on Microsoft Excel – not their ERP --  for the consolidated view of receivables data they needed to perform their jobs.

Be aware of a concerning trend that researchers have continued to see: Certain customers may engage in chronic disputes, short pay, and late payments as a way to preserve or boost their own cash flow. For a customer that may be struggling, this pattern can provide short-term relief and may actually self-correct once the customer’s cash shortage is remedied. For “cash-rich” customers, this pattern may signal the need for deeper account reviews, relationship profitability analyses, and a more strategic decisions regarding terms and renewals.  

Ultimately, dispute resolution and dispute management provide an opportunity to strengthen the customer experience (CX) you offer, which can be a powerful competitive differentiator.

Unhappy customers not only exit business relationships, they also tend to share their frustrations publicly with peers, other providers, and regulators. In addition to legal and financial hits, those activities can tarnish your reputation and diminish your success in attracting and retaining new accounts.  

Errors can occur on either side of the relationship. Regardless of what triggered the dispute, timely and two-way interaction is crucial to dispute management. This is where customer service tools can be invaluable in helping you to listen, learn, discuss and inform, and take action. When your customers feel they are treated respectfully and fairly – regardless of the final outcome – they are more likely to continue the relationship and recommend your company to others.

#3: How Can Dispute Management Processes Be Improved?

Finance practitioners and researchers tend to focus on these best practices to help companies streamline and enhance customer dispute resolution and management:

  • Offer a dedicated customer portal. Make it easy for customers to send questions and request assistance, review their account details and invoices, submit payment to you, or file a dispute claim.  Offer customers more self-serve, convenient options in terms of payment notifications and reminders, payment types, and timing (e.g., scheduled recurring payments, credit card payments, pre-authorized debits, etc.). Prompt, comprehensive responses to customer needs and inquiries can help reduce dispute claims and build customer satisfaction and loyalty.   
  • Leverage automation and integration. The more time spent on researching and validating disputes, the less money you are collecting – and the more your customers may become aggravated by long wait times. Automation and integration reduce manual work needed to identify, validate, and investigate dispute claims. They also enable A/R and collections managers to more easily complete due diligence, notify customers, coordinate internal approvals where needed, and share relevant A/R and collections data and reporting with other finance staff.
  • Develop, communicate, and stick to a formal dispute management process. Following a consistent, clear process that outlines steps and expectations related to dispute receipt, tracking, investigating, resolving, and reporting can go a long way in simplifying an A/R or collection manager’s work and can help ensure a timely, effective outcome for customers. For example, segmenting rules can ensure major customers can dispute up to a certain amount and be issued an immediate credit.
  • Learn from dispute trends, patterns, and cycles. Disputes are categorized by reason codes. Administrative disputes occur when errors appear in documentation (invoice, packing list) or when billing requirements aren’t met (such as posting to the customer’s A/P portal). Missing goods disputes arise when a customer is billed for a product or service that was not delivered. A quality dispute occurs when an item arrives damaged or fails expected standards. A pricing dispute can result when  the price on the invoice differs from what the customer agreed to (i.e., a sale price or promotional discount is not reflected).

It’s Hard Work that Pays Off

Resolving a customer dispute may be relatively straightforward. For example, if a product was damaged in transit, issuing a credit note or shipping a replacement product will solve the immediate issue – but it won’t prevent the same problem from recurring.

Remember that a customer dispute often impacts the finance department as well as many other departments across an organization, such as customer service and shipping. For that reason, disputes should not be strictly viewed as an accounts receivable issue. Analyzing reason codes can help the entire company understand the circumstances and lead to strategies that help prevent repeats.

For finance teams, disputes are a direct and powerful means to understand the needs of customers. Transforming that knowledge into effective, productive customer engagement can yield more timely payments, higher customer satisfaction and retention, and ultimately more predictable and stable cash flow.

Need assistance with establishing more effective dispute management and dispute resolution processes for your company? Discover how Dun & Bradstreet can help by exploring our accounts receivable and collections resources here.  


The information and opinions provided by Dun & Bradstreet in reports, articles and blog posts are suggestions only and based on best practices. Dun & Bradstreet is not liable for the outcome or results of specific programs or tactics. Please contact an attorney or tax professional if you are in need of legal or tax advice.