Why Dispute Management Remains a Challenge?...

I have visited numerous credit and collections departments over the years and managing disputes still remains a time consuming challenge for many of them. There are several reasons for this, but all are related to the complexity of commercial trading relationships which typically involve multiple points of interaction between trading partners pointing toward an increased need for networking or collaboration solutions.

On the buyer side of the equation you typically have the requisitioner, purchasing agent, receiving, quality assurance, and accounts payable.  Meanwhile sales, order processing, customer service, shipping, operations, billing, cash applications, credit and collections all play a role for the vendor. With that many cooks stirring the pot, any deviation from a clean transaction is sure to launch ripples across the supply chain, impacting the cash settlement process.  Here are a few reasons why dispute resolution still remains a challenge:

Vendor Compliance:
Increased inventory management sophistication has prompted buyers to demand more from their vendors. The outgrowth of this is the vendor compliance manual that specifies virtually everything from packaging to labeling to delivery times in minute detail. Failure to comply results in specified penalties the buyer will take as a payment deduction. Likewise, buyers have increased the number of specifications included in their purchase orders. From the vendor perspective, this has created an increasingly complex compliance environment. Instead of being able to treat every customer order the same more and more customer orders require special handling, the exceptions being the rule.

Post Audit Claims:
Understandably, this increasingly complex vendor compliance environment has resulted in rising dispute volumes. In turn, high dispute volumes provide an opportunity for Post Audit Claims, in which a third party working on behalf of the buyer audits the transaction history, often going back several years, between their client and its vendors in order to identify overlooked compliance issues that are then presented in the form of a claim. These are extremely time consuming to defend even if you have good records, and so impose a huge burden on the limited resources of most vendors. And of course, there also remain a variety of common dispute and claim issues involving things like returned merchandise, sales tax and freight that are part and parcel of every buyer/seller relationship and which are often evidence of internal system weaknesses. Companies that embrace a true automated deduction workflow solution will be ahead of the game due to better tracking and reporting.

The Need for Distinct Processes for Different Exception Scenarios:
Because each different type of exception will require a different set of responses, selling organizations face a huge challenge in formulating all the necessary standardized resolution processes. There are different routing, approval levels, and notifications that need to take place for each and every exception scenario. In the absence of a hard-wired process, exception handling will tend towards inconsistency, which ultimately just adds to the confusion. Standardization ensures consistency in the process no matter who is handling the dispute, payment deduction, warranty claim, customer inquiry or whatever else might have come up. The key is to enlist technology that can help associate an exception type with each issue that arises, and to then have a preset protocol for handling every exception and dispute type.

The Variable Components of the Exception Resolution Process:
Not only will there be a host of dispute resolution scenarios, but each resolution process has its own variables. The following list itemizes key components that are found in most dispute resolution processes.

>Reason Codes
>Activity Owner or Actor
>Authorizing Authority
  -Levels of authorization
>Cycle Time Parameters and Service Level Agreements
>Exceptions at the Item Detail Level
>Supporting Documentation
  -Documents
  -Images
  -Contracts
  -Bill-of-Lading
>Final Dispensation
  -Credit
  -Charge-off
  -Collect

Additional variables arise as these components interact with each other and the sequence in which they come into play. Some resolution processes will be relatively simple and straightforward while other situations will require a complex solution. Moreover, as changes occur within your business (e.g. a reorganization of the Sales function or a new accounting system), these components will be affected. The challenge is to stay on top of the interrelationships of all these components and the complexity of your resolution processes.

Stay tuned for Part II of my automated dispute resolution workflow blog series in which I will discuss how Business Process Management can apply to dispute resolution workflow and help companies overcome dispute resolution challenges.