What is Dispute Management?

Disputes are a part of accounts receivable management and occur when a customer objects to - and doesn’t pay - a certain amount of their total owed. Disputes are, essentially, any reason a customer claims for not paying their entire invoice on time and within terms. Some disputes arise from billing issues (for example, a sale price was not reflected), while others arise from product issues (for example, a box of goods arrived damaged). The charge is disputed by filing a claim.

Dispute management is the process by which the A/R team validates the claim, authorizes the deduction (if the dispute is legitimate) and modifies the invoices and account statements, or denies the claim.

Why Is Dispute Management So Important?

Dispute management is important because contributes to cash flow and revenue collection. It’s important to quickly resolve disputes and authorize any deductions so that payment is not delayed further. Unresolved disputes can be uncollected revenue – or “revenue leakage” – dollars that are never recovered. Unchecked, this can become a habitual offense that can cost thousands and even millions of dollars in lost cash – impacting cash flow, working capital, and profitability.

Imagine your company’s customers dispute a total of $500,000 every year and deduct that amount from their payment to your company. If your company could accurately identify the unauthorized disputes and unearned deductions and focus on collecting even half, that’s an extra $250,000 in recognized revenue.

However, timely resolutions for disputes and deductions is easier said than done. Manually managing disputes can be time-consuming and labor intensive. Some companies have an entire team of people dedicated to disputes (here at Dun & Bradstreet there are about 5 people).

Not every dispute is legitimate, and so most companies must research the claim. If a customer disputes a late fee, for example, but it’s part of your company’s credit policy or collections policy to apply a late fee if payment is not received after a certain time period, then the dispute can be denied.

Dispute management is important is also important to customer service. This isn’t an issue of a customer not paying and you can decide to hand the account over to a third-party collections agency. Disputes are a part of the course of business for many industries – manufacturing, food, wholesale, and distribution – those industries with a high volume of tangible products. It’s important to quickly resolve disputes, correct billing errors, and communicate with your customers throughout the process to make it easier for your customers to work with you.

Types of Disputes

  • Administrative dispute occurs when there are errors in the documentation (invoice, packing list) or your company didn’t comply with the customer’s billing requirements (such as posting to their A/P portal).
  • Missing goods dispute occurs when a customer is billed for a product or service that was not yet delivered or is somehow unaccounted for.
  • Quality dispute occurs when an item arrives damaged or is rejected by the customer based on quality.
  • Pricing dispute occurs when the price on the invoice differs from what the customer agreed upon – for example, a sale price or promotional discount is not reflected.

How to Resolve a Dispute

Most companies will have a collections policy with guidelines on how to handle disputes and deductions. However, many companies do not have a consistent process for managing disputes and deductions, which can lead to a large backlog and impact cash flow.

The first step in dispute management is discovery, to make sure the dispute is not your company’s fault. Pricing errors, such as not honoring a sale price, charging for a returned product, or a mismatched purchase order (PO) don’t provide a good customer experience. You don’t want your customers withholding payment based on your oversight.

Because manual dispute management can be time-consuming and labor intensive, many companies use software that automates this process. A/R teams benefit from software that can identify disputes, report reason codes, prioritize and expedite resolutions, and automatically email customers. In addition to automated workflows, software can also compile performance and compliance reports and use AI to detect trends based on customer, product, business unit, location, and other attributes to help you prevent future disputes and deductions.

Common Reasons for Disputes

Common Reasons for Disputes

D&B Finance Analytics Receivables Intelligence

D&B Finance Analytics Receivables Intelligence is an AI-powered platform that automates the dispute and deductions management process to be more efficient. With Receivables Intelligence, workflows are streamlined - from issue identification to resolution - using machine learning tools. The optimization can result in a reduction in DDO, closed gap on revenue leakage, and improvement to your customer’s experience.

5 Methods of Dispute Resolution

Receivables Intelligence automates the following key processes in the disputes and deductions cycle:

Discovery - This AI-powered platform automatically identifies the cause of disputes and deductions using rule-based logic and comprehensive datasets. Data is collated from disparate sources such as EDI, emails, payments, remittances, and A/P portals to categorize the cause of deduction to allow for further processing. Embedded workflows also preempt certain deductions through early discovery steps.

Validation - Once identified, disputes and deductions are automatically validated. API calls to carriers are made to verify POD’s; check contract terms and PO limits; and check other claims for damages, tax deductions, discounts, and freights; then validated against internal or external data sources.

Approvals & Escalations - Disputes and deductions, including escalation notifications, are automatically routed to those roles with necessary approval limits based on your company’s hierarchy. An approver portal allows for instant decisioning. Machine learning is used to auto-approve the most frequent scenarios, saving time on common valid disputes and deductions.

Adjudication - Adjudication workflows auto-create the appropriate debit or credit memos and adjustments to customer balances. These adjustments are auto-posted to your accounting system, and adjustments can be made to any invoice headers or line-items.

Communication - Customers and internal partners, such as sales representatives, are automatically notified upon resolution. This includes copies of debit memo to customers when the dispute is denied for the deduction.

Would you like to learn more about Receivables Intelligence from D&B Finance Analytics? Contact us for a personalized demonstration today!

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