How a smart collector approaches disputes

By John Floyd, Billtrust Senior Business Consultant

A typical day in the life of a collector: A customer purchases goods and services on terms. They’re billed and make payment. Occasionally they may pay late, but overall it is a clean, straightforward procedure. And, after a day of collecting open receivables, you ride your unicorn home to your castle amongst the clouds.

Even if a customer’s receivables were only correctly billed undisputed invoices, collections would still be a very difficult profession. But we all know that there are other issues that further complicate the process of collecting invoices. Those issues have a name, disputes. While disputes are interwoven into collections, they do require a distinct workflow and come with their own set of unique challenges.

Disputes are a multi-faceted problem that ripple through an organization. The majority of the issues that lead to disputes are not issues that originated in the collections department. Plus, there may be issues that the collections department can’t resolve or doesn’t have the authority to resolve. Regardless of where the error of the dispute occurred, or who needs to take action on the dispute, it’s ultimately on the collections department to coordinate the resolution so payment can be remitted. 

In the world of disputes, the collector many times finds themselves playing the role of traffic cop. They try to coordinate the resolution between the customer and their company. This may require getting information or documents from the customer or your internal team. We have to consider that a collector has to play the role of traffic cop to all customers within their portfolio. That is a lot of time and effort that takes away from collectors being able to collect. 

A dispute typically starts when the order is placed. Of course, at this point, it is not a dispute yet, just an order (I feel this would make a good beginning to a School House Rock song). The customer places the order with certain expectations on deliverables. Perhaps the order is based on a contract or purchase order that contains specific language. It may also have certain identification numeric or alpha characters that need to be referenced on the invoice. 

There are multiple things that can go wrong at this point from the customer’s end. Even if your company properly ingests the order, there can still be things that lead to disputes. To a certain degree, there is nothing you can do about it. How are you to know that the customer referenced an expired PO or accidentally entered the wrong pricing or quantity? 

There are going to be things beyond your control, but let’s focus on the things you can control and things you can do as a collections department to make the disputes process as painless as possible. 

Identifying disputes

First, we have to identify a dispute. This can happen a number of ways: 

• A customer may be able to tag it through a portal.
• They’ll take it on a payment (and sometimes attach the necessary paperwork to the remittance). 

As part of our due diligence, collectors should be asking if there are any disputes during a customer contact. 

It is important to uncover potential disputes as early as possible. Any contact with the customer should direct them to communicate to the collector or a customer service department, if there are any issues that are withholding payment on an invoice. In a previous article, I wrote about using the six Ws when collecting. This methodology will help you uncover any issues with invoices that may be causing payment to be withheld. 

Quickly resolving disputes through smart processes

Once a dispute is identified, where it occurred and where the fault lies, is irrelevant (we’ll get to that part later). The goal now is to resolve it as expediently as possible. Having a solution, like the Billtrust Collection solution, can go a long way. It can help tag and get the disputes to the correct department and individual to resolve. This is where the role of traffic cop comes into play for the collector. 

The collector has to be the conduit between the customer and their internal team. Once a dispute is recognized, the collector should look to procure any documentation that will help in getting the dispute settled. If the customer made a return against an invoice, ask for return information along with the POD. 

If there was a pricing discrepancy or discount issue, see what the customer expected the price or discount to be. Do they have any confirming documentation from their sales representative that they can send you?

You can tag a dispute and notify the proper department and person, but they may tell you they can't satisfy this dispute without the proper documentation. You in turn will have to go back to the customer to get the documentation. This adds time, ages the invoice or debit memo and negatively affects your delinquency. Plus, it takes time and attention away from other issues. And, it can cause undisputed invoices to be neglected and not paid. Acquiring any relevant documentation up front can save precious time.

Once the dispute is sent out to the appropriate person to resolve in your company, that doesn’t mean the collector's role is over. Remember, at the end of the day, the collector is ultimately responsible for that receivable to be paid. They cannot just send the issue to someone else and assume it will be taken care of in a timely manner. 

Part of your role is to keep open the lines of communication with the customer and your internal team in case any additional information is required. You may also have to encourage your internal team to be expedient in their resolution. 

At the point of resolution, whether a credit was issued, a replacement product was sent, the invoice was re-billed, or the dispute was rejected, the collector still needs to act on the dispute. At that time, they need to inform their customer that restitution was made and payment for the disputed amount needs to be made. Notice I said disputed amount? A good collector would have already been pursuing payment for the undisputed amount. 

In a brilliant use of the literary device known as foreshadowing, I mentioned we would be getting to something later.  Well, now is later (throwing in an oxymoron for good measure). I was talking about when a mistake that leads to a dispute occurs, and who is at fault? Disputes in collections are usually reactionary, as a customer makes a dispute after an invoice is already billed and aging. The collector reacts to it and tries to get it resolved. 

What if we were to weaponize disputes? What if we were to use data that we have as a means to lessen the number of disputes customers take? What if our dispute process and workflow wasn’t always reactive and we could make changes upstream?

When I was a collections manager, I can’t tell you how many account reviews I sat on and heard that dealing with disputes takes a large part of a collector’s day. Having done the job for so long, I knew what they were saying was true, but it was purely anecdotal. I couldn’t go to upper management or other department heads. I couldn’t say we have a dispute problem and we need them to fix it on their end because their processes are broken. They would ask questions such as: How many disputes do they handle? How much money is tied up in disputes? How long does it take them to resolve? And they would be 100% correct in asking those questions. Most companies like to make decisions based on data, and for much of my career, that type of data was hard to come by.

I consult with customers who are implementing our Billtrust Collection’s Solution. One part of that implementation is consulting on their dispute workflow configuration. Our solution allows you to tag disputes and categorize, give a dispute reason and assign to a department and assignee. Since that information is captured, you can report on these different areas (Category, Reason, Department and Assignee). 

Why is that important? Because now you have the necessary data to enact upstream change. You can go to upper management and other department heads and tie a dollar value to issues disputes are causing. Telling a story that includes being able to say for instance, you average $50K uncollected in missing purchase orders a month ($600K yearly) is compelling. That will make people take notice, and even more important, take action.

It’s well worth the time and effort for your company to examine your order process and how you can better make sure purchase orders are captured. Will that mean you have $0 dollars in missing purchase orders? Of course not, unless you really do commute to work on a unicorn. But what if, with an improved process, you made a very modest efficiency increase of 50% fewer missing purchase orders? That’s an extra $25K collected a month ($300K yearly) that didn’t age needlessly due to disputes. 

That doesn’t take into account the labor costs of your collector taking additional time to reconcile, and the labor of whoever resolved the dispute internally. The missing purchase order example is just one of many potential upstream fixes. Think of how many other issues you have with purchase orders or pricing, or how about sales tax? With every possible dispute reason your company receives, there is a potential improvement and efficiency to be made. 

Disputes are always going to be a reality in the collections world, but that doesn’t mean there isn’t room for improvements. If changes can be made that lead to fewer disputes, a collector’s time is freed up. They can make more customer contacts and theoretically collect more money. 

Labeling disputes by category and reason helps in getting disputes resolved quicker. Plus, it allows us to gather information that can be used to make fixes earlier in the order-to-cash process. The more proactive we are, the more efficient we can be. As much as disputes have an effect on a collections department, nothing is more influential than the credit granting process. I will be discussing the relationship in my next post.