Accounts Receivable Dispute Management Tips

In a perfect B2B accounts receivable world there would be no reason for this blog. But there is no such thing.

Even If somehow you were able to produce flawless accounts receivable, where every invoice is accurate, issues will still arise because a product or service wasn’t delivered to the customer’s satisfaction. So since disputes are inevitable, it’s best to learn how to effectively manage them.

Disputes occur when a customer disagrees with and refuses to pay the amount (or part of the amount) they owe you on time and according to the terms previously agreed to. The dispute can be for any reason. Of course, often disputes are due to the errors that happen with manual invoice processing but not always. Maybe the customer was promised a discount by a sales rep that wasn’t reflected on their invoice. Or it could be that a product arrived damaged or late. 

Disputes typically fall into one of these categories:

Administrative–This kind of dispute is due to an error in the invoice or packing list or if you didn’t meet your customer’s billing preferences.

Missing goods–This is when the customer is billed, but the goods (product or service) have not been delivered. 

Quality–This dispute happens when the customer rejects the item because it was damaged or the quality was unsatisfactory.

Pricing–This kind of dispute revolves around a discrepancy between the price charged and what the customer agreed to. 

Whatever the type or reason for the dispute, dispute management begins when the customer files a claim. The next step in the process is the accounts receivable team’s investigation and validation of the claim. If the dispute turns out to be legitimate, the invoice is modified. If not, the claim is denied and payment will be expected.

The Importance of Dispute Management

For starters, effective dispute management helps with revenue collection and cash flow. The quicker disputes are resolved, the faster a corrected payment can be made. When disputes are left unresolved, it’s likely they’ll fall into the bucket of uncollected revenue, sometimes known as “revenue leakage.” If you don’t keep track of your dispute management efforts, it can end up costing you more than you imagine–and any amount is going to adversely impact cash flow, profitability and your working capital. 

For example, the yearly total of your disputed payments is $400,00.00, and your customers withhold payment in that amount from you. If you’re able to prioritize and improve your dispute management to recover only half, that’s $200,000.00 more in collections. 

Another part of your business that’s affected by dispute management is customer service. The truth is you just can’t turn over every case of nonpayment to a third-party collections agency. It would be costly and unnecessary.  No matter the industry, when you’re in business, disputes are going to come up. The best strategy is deal with them quickly, make corrections cheerfully and communicate clearly with your customers throughout the whole process.

Many small businesses don’t have the resources to have a team or even one person devoted to dispute management. And dealing with disputes is labor intensive and time-consuming, especially if you have to manage them manually. Still, there are best practices you can put in place to improve dispute management. Read on to learn some tips that will help you with timely and advantageous outcomes in dispute management.

Tips for Effective Dispute Management

Effective dispute management begins with a collections policy which establishes guidelines on how to deal with all disputes and any resulting deductions. Having a well-defined dispute resolution policy in place sets expectations for both parties involved in a B2B transaction. Clearly outline the steps that should be taken in the event of a dispute, including the communication channels and timelines for resolution. This proactive approach can help prevent disputes from escalating and facilitate a smoother resolution process.

The first step is discovery, making sure your business is not to blame for the dispute.

Errors from pricing–not giving a promised discount, failing to recognize a sale price or charging for the wrong item–lead to a poor customer experience. The next steps in dispute management may differ from company to company, but these tips should guide you in your process.

Establish Clear and Transparent Terms

The foundation of successful dispute management lies in clear and transparent communication from the beginning. With  B2B transactions, it's essential to establish detailed terms and conditions that outline payment terms, deliverables, and any potential areas of dispute. Clearly define pricing structures, billing cycles, and penalties for late payments to minimize misunderstandings.

Use Robust Invoicing Systems

Investing in a robust invoicing system can significantly streamline the billing process and reduce the likelihood of disputes. Automated systems can help ensure accurate invoicing, proper documentation of transactions, and timely delivery of invoices. This not only minimizes errors but also enhances the efficiency of accounts receivable management.

Maintain Accurate Records

Accurate record-keeping is crucial for resolving accounts receivable disputes. Keep detailed records of all transactions, including contracts, invoices, and communication with clients. This documentation serves as evidence in case of disputes, offering a clear timeline and reference point to resolve issues efficiently.

Foster Open Communication

Effective communication is the cornerstone of successful accounts receivable dispute management. Encourage open communication with clients, making it easy for them to reach out with any concerns. Timely responses to queries or issues can prevent misunderstandings from escalating into disputes and demonstrate your commitment to resolving matters collaboratively.

Conduct Regular Reconciliations

Regularly reconcile accounts to identify and address discrepancies promptly. This proactive approach allows you to catch potential issues before they escalate into disputes. Reconciliations also provide insights into cash flow, helping you make informed decisions about their financial health.

Train Staff on Dispute Resolution

Ensuring that your staff is well-trained in dispute resolution processes is crucial. Equip your team with the necessary skills to handle conflicts diplomatically and efficiently. This may involve providing training on communication techniques, conflict resolution strategies, and the specifics of your company's dispute resolution policy.

Offer Flexible Payment Options

Consider offering flexible payment options to customers to accommodate their unique financial situations. This flexibility can help build stronger relationships and reduce the likelihood of disputes arising from payment-related issues. Work with your customers to find mutually beneficial solutions during challenging times.

Leverage Technology Solutions

Incorporate technology solutions that can enhance the accounts receivable management process. This may include software for automated invoicing, machine learning tools for predictive analytics, or customer relationship management (CRM) systems that centralize client information. Using technology can improve efficiency and reduce the likelihood of errors.

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.

Conclusion

Effectively managing accounts receivable disputes is crucial for B2B businesses aiming to maintain financial stability and build positive customer relationships. By implementing transparent communication, utilizing technology, and proactively addressing potential issues, businesses can navigate the complexities of dispute management successfully. With a solid foundation of clear terms, accurate record-keeping, and a commitment to open communication, B2B enterprises can minimize the impact of disputes and focus on sustainable growth.

Payference is an AI-powered cash management platform that can help with effective dispute management. It seamlessly integrates with your accounting and ERP systems to transform your accounts receivable. If you’d like to learn more about Payference, schedule a short demo today.