Invoice dispute management: How to protect your receivables | Chaser

Disputes in accounts receivable processes pose significant challenges for businesses. They consume valuable time, impact financial performance, and tarnish customer experiences. With 55% of AR professionals citing dispute management as their toughest task, it's evident that effective dispute resolution is crucial for maintaining financial health and customer satisfaction. 

This article will delve into the intricacies of dispute management, exploring common challenges, steps involved, and strategies for optimizing the process to safeguard your receivables.

Understanding invoice disputes

The most obvious thing to say about late invoice payment is that it impacts cash flow. Businesses need to be able to predict incoming revenue, and expenditure, often with a high degree of accuracy. They cannot do so if a high proportion of their invoices are rejected, queried, or delayed.

Invoice disputes can hinder payment completion and impede cash flow, making financial planning more challenging than it needs to be. It can lead to bad blood between customers and the business, potentially leading to loss of contracts and attendant revenue.

Common types of invoice dispute include:

• Pricing – any difference between the price quoted and the charge invoiced.
• Administrative – documents aren’t completed, or signed, or lack invoice numbers, etc.
• Quality – the recipient deems the product or service inadequate and refuses to pay in part or in total.
• Payment terms – this may include the number of days allowed for payment, interest rates for late payment, the number of instalments, tax, etc.
• Missing goods – the invoice includes items the client did not receive.
• Multiple billing – more than one invoice has been mistakenly issued.
• Returns or changed orders – the invoice does not accurately reflect alterations to the original order.

Of course, in some cases, an invoice dispute might involve more than one problem. This is why it’s vital to both improve the quality of invoicing and develop a robust strategy for swift, amicable dispute resolution.

How common is the problem of late-paid invoices due to disputes or poor communication? One source reports that in the US between 39% to 45% of invoices are paid late (seven days on average). This volume of late payments can have a significant effect on cash flow.

In the US between 39% to 45% of invoices are paid late (seven days on average). This volume of late payments can have a significant effect on cashflow.

Challenges in dispute management

The process would be challenging enough if all customers raised a dispute as soon as they received their invoice. Sadly, this is not always the case. It’s a fact of human nature that many people will put off awkward calls or conversations until the last minute. Therefore, by the time a business learns about a disputed invoice, its payment may already be overdue.

The process of dispute management itself can be time-consuming too, often requiring complex cross-departmental investigations to find out what went wrong. Many departments’ data may be unhelpfully siloed, making these resource-intensive investigations even harder.

A further consequence of stored data is that it can lead to inefficiencies, inaccuracies, and delays in discovering the root cause of a problem. Sometimes the measures taken to ensure data security and privacy work against an AR department’s ability to ensure a speedy dispute resolution process.

At the other end of the conversation, the customer may prove elusive. It may be hard to obtain useful information or timely responses from them. If they fail to collaborate with an investigation, it can be very difficult to provide a satisfactory resolution. Any lack of collaboration will inevitably lengthen the timescale of the process and prolong the time to settlement.

Let’s now break down the process of dispute management, so that you can see where the inefficiencies lie, and identify opportunities for process improvement.

Steps involved in dispute management

Here are the eight stages of dispute management, and the challenges they bring:

1. Receiving dispute cases: AR analysts receive dispute tickets from accounts departments or customers. Delays will occur if customers don’t promptly register a query or complaint or provide inadequate information.
2. Logging and tagging: Analysts record disputes in tracking systems and categorize them based on importance. This can involve a lot of value judgements and manual decision-making processes which can result in errors of prioritization and further delays.
3. Aggregating data: Relevant information for each dispute is gathered from disparate systems and stakeholders are notified. Required data might include invoice numbers, goods tracking codes, bills of lading, tax receipts etc. It may require cross-departmental collaboration and the use of multiple systems including CRM and ERP (enterprise resource planning) databases. It is often a manual process and the most time-consuming part of dispute resolution.
4. Requesting additional information: Analysts contact customers to obtain missing documents or clarification. Customers may not have the relevant documentation or may have misplaced it. They may misremember dates and should not be expected to understand technical jargon or nomenclature. Customer frustration tends to grow in direct proportion to the number of emails and phone calls required to resolve a query.
5. Resolving the dispute: Analysts investigate dispute validity and determine appropriate action, such as refunds or write-offs. Root cause analysis can prove challenging when numerous teams, individuals, systems, platforms, and processes are involved. It’s often easier to track what happened than why it happened, especially when lessons aren’t learned from recurring patterns.
6. Notifying the customer: Customers are informed of dispute outcomes and issued credit or debit memos. This often happens much later than the customer would like, and the resolution may not be to their satisfaction either.
7. Seeking approval: Analysts obtain stakeholder approval for dispute resolutions and update invoice statuses. There can be annoying delays at this step too, since such stakeholders may be very time-constrained, and may not promptly respond.
8. Issuing a credit or debit memo: Finally, the customer will be informed whether they’ll be credited, or required to pay the desired amount. It is important to provide evidence and explain the investigation process as simply as possible so that the customer feels their inquiry has been handled thoroughly and fairly.

Historically, many of these stages required laborious manual processes, with AR analysts working rather like detectives, piecing together evidence from multiple sources, while painstakingly documenting the process to ensure maximum accountability and transparency.

Even in the best-case scenario, customers could receive resolutions weeks down the line, and accounts receivable departments would obtain payment significantly later than expected at the date of issue.

Optimizing dispute management:

Analysts and AR professionals must find a way to streamline the process of dispute management, reducing the timescale for enquiries, learning from common mistakes and ultimately, improving AR performance by increasing the number of invoices paid on time.

A combination of procedural streamlining, and automation, should produce improved results while generating happier customers and less harried AR analysts.

Here are some of the improvements AR analysts can make by using a platform like Chaser for invoice management:

Use AR automation

Tools now exist which can automate much of the process of root cause analysis, with flexible functionality, customizable escalation options, and dedicated workspaces. What might once have taken days or even weeks to track, can now be achieved in minutes or hours.

Centralize dashboards 

By putting all salient data in one place, such dashboards provide granular insight into dispute status and facilitate efficient resolution. AR analysts can prioritize enquiries better, by having complete oversight over the status of their tickets.

Attach supporting documentation 

Misfiling or loss of information is much reduced when you can simply attach supporting documentation to disputes for immediate access and enhanced transparency. It becomes easier to prove to customers that their enquiries have been thoroughly investigated and follow-up queries are easier to answer.

Automate escalation triggers 

One key use of automation is to set up escalation triggers based on service legal agreements (SLAs) to expedite resolution. This means that a problem need never become a crisis, because analysts receive alerts when due dates are imminent. Triggers can be scheduled according to a target timescale, a level of financial loss, or some other parameter.

View all open disputes 

Good AR platforms allow all disputes to be viewed in a single window for bulk actioning, minimizing manual effort and maximizing efficiency. This is also invaluable when preparing reports on team and process performance.

The human side of dispute management: four rules

While software and its automation are wonderful labor-saving innovations, we mustn’t neglect the importance of good human interactions too.

Here are four simple rules for improving those person-to-person touchpoints, whether in emails, phone calls, or in person:

1. Extend empathy to customers who are struggling to pay. Some invoice disputes are financial ‘cries for help’ in disguise. A customer’s cash flow may be adversely affected by changes in the marketplace, or one-off calamities, leading to a need to reduce all unnecessary expenditure. Try to see difficulties from a customer’s perspective and err on the side of generosity – you’ll build loyal and grateful customers that way.
2. Communicate clearly and without jargon. Customers don’t care about the technical language related to a problem. They simply want to know what went wrong, what you are doing about it, and when. Miscommunication when issuing quotes and signing contracts can lead to disputes downstream. Above all, be as clear as possible. 
3. Don’t ask for unreasonable evidence. Sometimes it's simply better business to assume that ‘the customer is always right’ and not require excessive evidence. This is particularly true if you’re asking customers to locate age-old emails, or photograph and SMS physical documentation. Weigh the time and effort costs of disputation against any losses occasioned by amending an invoice in the customer’s favor.
4. Don’t get personal, raise your voice, or escalate. Frontline staff who deal with customers on the phone must be especially careful not to let their frustrations dominate their interactions. Sometimes counting to ten before delivering a measured reply can prevent an irritated customer from becoming a furious one.
   
   

Dispute management needn’t be painful

Dispute management doesn't have to be a nightmare. By embracing AR automation tools and optimizing your dispute resolution strategy, you can transform dispute management into a streamlined, efficient process. 

Protect your receivables, mitigate financial risks, and enhance customer satisfaction by mastering dispute management and ensuring swift resolution. 

By ensuring that disputes are handled efficiently, with automation replacing routine manual data input and retrieval, your timeline to dispute resolution can be shortened significantly, customer retention can be improved, and, vitally, cash flow protection can be optimized. Key to this approach working is the integration of an AR platform which draws together data from multiple departments, prioritizes tickets, and ensures all salient information and documents are kept together for easy recall.

A platform like Chaser can take the pain out of accounts receivable for SMEs, providing everything from SMS payment reminders to late payment prediction, payment systems, and debt collection services. Chaser fulfils the full AR timeline from credit checking of prospective customers to recovery and reconciliation.

Integrate Chaser’s suite of advanced automation into your AR procedures and gain immediate peace of mind and cash flow protection. Why not book a call to learn more, or dive right in with a 10-day free trial.