Improving Working Capital with Effective Dispute Management Capabilities
Background
Receivables-related disputes arise when customers either refuse to pay their bills outright or deduct a portion of the invoiced amount from their payment by an amount that exceeds a preset tolerance.
For companies in the electronics and high-tech sectors, disputes can have a dramatic impact on working capital and net bad debt. In fact, these companies can have up to 25 percent of monies owed them tied up in disputes at any given time.
This can represent a significant portion of a company's day's sales outstanding (DSO), thereby taking a toll on free cash flow and increasing working capital requirements.
Disputes can also drive up operating expenses and have an impact on employee morale, given the degree of exception processing and manual intervention often required to settle accounts. Equally important, disputes are an indicator of customer dissatisfaction and can ultimately result in customer attrition.
Analysis
Dispute management is a critical component of any company's revenue cycle process and customer service capabilities. The successful implementation of a program for managing disputes is therefore essential for the achievement of high performance.
The first step is to uncover the root causes of disputes. These usually arise in areas that can be categorized as:
Back-office order-to-cash processing: These issues result in pricing, billing or invoicing errors.
Irregular sales cycle activities: These activities may propose non-standard terms, promotions or side agreements. While these special offers might attract customers, they can lead to disputes if not properly translated into order management and billing systems.
Order-fulfillment issues: Late product delivery, damaged goods and partial shipments are primary causes of disputes.
Operational issues involving service delivery: The requested service must be delivered satisfactorily and within the terms of the customer contract. Failure to do this can lead to disputes.
Recommendations
Electronic and high-tech companies wanting to achieve high performance need to build effective dispute management capabilities that focus on four areas:
An integrated revenue cycle platform and process: This enables companies to reduce upstream sales and billing errors, gain a better view of their revenue cycles, streamline dispute management activities, improve cash flow and reduce customer frustration.
A powerful dispute management workflow engine: Many providers now offer rules-based workflow engines that automate dispute management activities.
Detailed root cause analysis: By understanding customer dispute trends and metrics, companies can identify and implement continuous improvement opportunities and improve transactional performance on an ongoing basis.
An optimal organizational design: To be most effective, dispute management functions must be part of an overall organizational design or shared services model that supports a streamlined dispute resolution process.
Conclusion:
A dispute management program that comprises process, technology and organizational components can help companies improve customer satisfaction, reduce operating expenses and dramatically improve their working capital. More important, the program can have a direct impact on a company's ability to achieve high performance and competitive advantage.
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