CHAPTER 5: CASH APPLICATION, DEDUCTIONS, AND DISPUTE MANAGEMENT
Although it can be difficult to admit, the customer is often right when it comes to taking the deduction. John G. Salek, author of Accounts Receivable Management, estimates that AR reclaims less than 10% of deductions.
Value of Automation For AR departments with an automated application and match system, the system itself will raise the first red flag if the dollar amount paid doesn’t correspond to the amount invoiced. The system will then try to resolve the issue by searching and matching an appropriate credit memo without any human intervention. The issue really lies in that the customer has not pre-notified the company about the discrepancy until they deduct it from the invoice. If the auto-match system cannot resolve the mismatch, then it’s time for people to step in. Likewise, in a company without an electronic AR system, someone in the accounts receivable department will be notified of the mismatch and begin the process of gathering the facts to resolve the discrepancy. With a workflow system, once the system recognizes a mismatch between the payment and invoice, it will present all the pertinent documents in a package. Often the system will also send a message to the customer, notifying them of a short pay and letting them know they will be getting a call to resolve it. Technology and automation can play a major role in the success of a collection department’s dispute resolution process. Because a high volume of dispute transactions can greatly impact collections, having an efficient system tool to route, categorize, track, and report disputes automatically can have a huge influence on productivity, reducing the time employees spend on clerical tasks. However, automation should not be looked upon solely as a means of improving employee productivity—it should also be viewed strategically to identify and correct the causes of disputes before they cause a loss in resources. The benefits of automation are illustrated via the following case study. American Water Heater Company was experiencing a high level of customer grievances. Seeking to improve their customer service and handle the high volume of disputes, they implemented an automated system with problem-tracking abilities. Disputes were separated from other standard past due invoices, and problems were tagged with tracking codes. Analysis of these codes soon identified a common root cause for these disputes, relating to original invoicing. Changes were implemented to remedy the invoicing errors, and American Water Heater soon saw great improvement to its outstanding AR compared to sales, as well as superior DSO numbers. Additionally, they experienced greater satisfaction among their customers and a more productive collection staff. Customer Service It is important to recognize that disputes require good customer service. Your customer is saying there is a disagreement between the two companies. Adopt an attitude that dispute resolution is not simply a collection process, but rather a customer service activity that will lead to greater customer satisfaction. In this very competitive world, how these disputes are handled can be the difference between keeping and losing the customer.
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THE ACCOUNTS RECEIVABLE SPECIALIST CERTIFICATION PROGRAM E-TEXTBOOK
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