A/R Management & Automation
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Accounts Receivable Dispute Resolution

Accounts receivable (A/R) dispute resolution is the process of addressing and resolving disputes or discrepancies that arise between your company and its customers regarding outstanding invoices or payments.

A dispute may be raised for a variety of reasons, most often including incorrect billing, incorrect pricing, damaged goods, and late or non-delivery of goods or services. Although either the business or the customer may raise issues with a requested payment, the term “dispute” generally refers to complaints filed by customers and directed toward businesses.

As A/R teams can attest, the costs of accounts receivable dispute management add up quickly, and companies can’t afford to lag in addressing these setbacks. Invoice dispute management is a two-way process between business and customer, though as the service provider in the equation, businesses need to stay proactive in identifying and addressing any issues related to outstanding invoices.

How Do I Handle Dispute Management in Accounts Receivable?

Every dispute made by a customer requires time, effort, and resources to make things right. Recurrent disputes can indicate problems with your financial process (possibly related to collections, your credit lending policies, or payment options). Regardless of the reason, the costs add up. Every dispute will require additional handling, staff input, and system reviews to unravel the problem; not to mention the costs associated with delayed payments and interrupted cash flow!

While it’s certainly important to understand the why behind each dispute, identifying the root problem is only the first step. Dispute management is a multi-step process of problem resolution that every business will need to reckon with. Use the following steps as your framework to begin:

Dispute Identification

The first step in resolving a dispute is to identify its cause. This involves reviewing the invoice and identifying the specific issue causing the concern. Generally, disputes can be categorized among problems with pricing, quality, missing items, or administrative issues (such as double billing).

This step will also involve coordinating the dispute ticket within the larger financial system, assigning a priority level to the issue based on its severity and handing off the ticket to a team member who will initiate customer contact. This is all necessary preliminary work that should be undertaken before the company speaks with the customer.

Document Review

As a complement to step one, companies should collect all pertinent documentation related to the dispute. This aggregation could include:

  • Order invoices
  • Sales receipts
  • Proof of delivery
  • Previous customer emails

When you have an automated A/R platform that’s integrated with your key customer relationship management (CRM) systems, this step is easy. If not, businesses may need to do some legwork and gather these documents by hand before proceeding.

Customer Communication

Once the dispute has been identified and documents have been collected, the next step is to reach out to the customer. This can be done through phone, email, or letter, and should be done in a professional and courteous manner with the goal of understanding both sides of the dispute in question.

The goal of this communication is to understand the customer’s perspective and to work towards a mutually agreeable solution. If the complaint is as simple as a double-billed product, resolution is easy—a simple refund will do the trick. However, most disputes tend to be more complex and will require both parties to come to the table. This is also a good opportunity for the customer to provide any additional evidence or documentation they may have to support their claim.

Investigation and Resolution

After understanding the customer’s perspective, the next step is to investigate the issue and work towards a resolution. This may involve reviewing contracts or agreements, contacting internal departments, and working with the customer to find a mutually agreeable solution.

Here, the A/R team responsible for invoice dispute management will do their due diligence and determine the best course of action, whether that means moving forward with the invoice, writing off the balance, or refunding the customer for a previous payment.

Once a resolution has been reached, it is important to follow up with the customer and document the resolution. This helps to ensure that the issue is fully resolved and that the company has a record of the resolution for future reference.

How Can I Prevent Future Disputes?

Effective accounts receivable dispute resolution can help companies improve customer relationships and minimize the risk of delayed payments and bad debt – but an ounce of prevention is worth a pound of cure. Businesses should strive to minimize the number of disputes that occur altogether as their primary way of managing issues with the accounts receivable balance:

  1. Establish clear payment terms: Make sure your payment terms are clearly stated in your contracts or invoices to prevent misunderstandings about when payment is due.
  2. Communicate with customers: Keep the lines of communication open with your customers, and reach out to them in a timely manner if there are any issues or concerns with payment. This can help prevent disputes from escalating.
  3. Verify invoice accuracy: Double-check your invoices to ensure their accuracy in representing the agreed-upon payment terms.
  4. Provide excellent customer service: Providing excellent customer service can go a long way in preventing disputes. Make sure your customers feel valued and that their concerns are being heard.
  5. Use digital billing and payment methods: Digital billing and payment methods can help streamline the payment process and reduce the likelihood of disputes.
  6. Follow up on unpaid invoices: If an invoice goes unpaid, follow up with the customer promptly to stay ahead of the issue before it begins to affect cash flow forecasts.

In general, the best way to prevent A/R disputes is to maintain a clear and transparent set of policies governing expectations around service. While there are no ironclad ways to prevent disputes from occurring, you can minimize your risk by outlining everything ahead of time and communicating clearly with your customer base — both before services are rendered and when, if ever, a dispute occurs. 

Need help improving your A/R management processes? Contact our team at Gaviti and learn how our accounts receivable solutions can streamline these critical business areas. 

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