Relationship Management Dispute Resolution

A study by Goldman Sachs found it costs 10 times as much to acquire a new customer as it takes to keep one. The reality is your credit department is quite often the most visible face of your company to your customers after the sale; they are an important component of your client relationship team. Quite often, credit needs input from sales or other departments to do their jobs properly, but lack the information, accountability, and control that they need. This hampers their ability to balance the goals of managing deductions, settling disputes, and optimizing cash flow. Operational systems have historically been focused on supply chain efficiency, sales force automation and customer relationship management (CRM). A blend of these disciplines, focusing on CRM will pay large dividends by keeping your credit department in control.

The basic concept of CRM puts all available information into the hands of those who need it. This information not only describes the current customer situation, but the history and commitments that have been made in the past. Having this not only saves time and research, but keeps everyone on the same page, and helps support good internal and external relations. It’s important to remember that credit and sales are part of the same team. If credit and sales have an antagonistic relationship due to a data disconnect, customers will feel the impact, and overall profitability and revenue growth will most certainly be stymied.

Typical Deduction Management Challenges
The biggest deductions management challenge for most companies is establishing cross departmental cooperation – which means the efficient sharing of customer information between credit, sales and operations. These internal relationships have traditionally been plagued by inefficient processes, unverifiable records, and on-the-fly promises made by sales staff that somehow never find their way onto the invoice, coming home to roost in accounts receivable (A/R) in the form of deductions and disputes. Too often, valuable customer information is hidden away in functional silos, instead of being shared between departments.

In the past, paper-based, manual processes have been a major source of frustration for A/R, as credit departments often lacked easy access to data to support a challenge to a customer dispute. Despite their value to finance and operations, enterprise resource planning (ERP) systems have not been much help in this area, lacking the credit-specific workflow and communication tools necessary to "close the loop" between sales and A/R. Even if these systems succeed in automating the order-to-collection process, they typically do not provide any means to handle the deductions, charge-backs and write-offs that will inevitably occur. In many cases, lack of time, personnel, and financial resources – not to mention senior management buy-in – are still holding many companies back in the Dark Ages of deductions management.

The good news for A/R departments is that today’s automated credit and deductions management systems, when properly implemented, have the ability to bridge the department gap by tracking customer responses and transactions, reducing risk exposure, ensuring contract compliance and ultimately enhancing trade relationships and profitability.

Minimizing Disputes Through Automation
When comparing manual collection processes to automated processes, recent data from the National Association of Credit Management (NACM) indicates that the use of automated solutions allows collectors to spend 76 percent of their time making first calls to customers and only 9 percent following up. By contrast, those still bound by manual processes can only afford to spend 25 percent of their time on initial contact calls, and must spend much as 33 percent of their time on follow-up calls due to disputes. Besides the obvious streamlining of deductions management and dispute resolution that an automated system provides, much of the time gained through automated processes is due to the time saved in prioritization of collection calls. This is one area where automated deductions management systems really shine – the NACM data indicates that manual prioritization can take up to 20 percent of collectors’ time, as opposed to zero with an automated system.

The Customer Isn’t Always Right
A recent article in the January 2006 issue of CFO magazine, “Are Customer Disputes Worth It?”, cited the fact that 90 percent of disputes are settled in the customers favor, and that roughly this same percentage of disputes are associated with large (usually past-due) accounts. Indeed, one of the biggest problems for companies that do not have an automated deductions management system in place is that when disputes arise, there is no way to prove that the customer isn’t right, so the customer becomes right by default – often at great expense and inconvenience to the seller. What this means to A/R is that despite the huge amount of time and resources most companies spend on dispute resolution, those activities are yielding minimal returns.

Without an automated system in place, dispute resolution becomes an issue of “your word against the customer’s.” In the interest of maintaining good customer relations, the customer is often allowed the benefit of the doubt in these situations. An automated deductions management system can remove this doubt, and provide collectors with a verifiable record of the promises salespeople made, as well as full visibility into the customer’s discount terms with just a few keystrokes.

Fewer Deductions, Lower DSO
Although not all deductions and disputes are preventable – such as those in the area of marketing and trade promotions, advertising allowances, and instant rebates at the point of sales (scan-downs) – an automated deductions management system can go a long way toward preventing the disputes that can be prevented, freeing up collector’s time to resolve those that will inevitably occur. Even in the aforementioned “unpreventable” cases, solutions are beginning to emerge. For example, some companies offer specialized trade promotion management modules to link marketing and sales promotions to the credit function by handling complex pricing issues and making sure that the correct amount is invoiced in the first place. Many centralized A/R systems also provide a means to reconcile shortpays with co-op advertising allowances or scan-down discounts on the fly, so that collectors’ time is not wasted chasing down the reason for the shortpay.

All told, a system that lets A/R know what sales promised – and that holds sales accountable for those promises – can have a major impact on a company’s overall days sales outstanding (DSO) by lowering the number of deductions and disputes to a manageable level. The result is a less stressed collection staff, greater customer satisfaction, a more productive sales force, and a happy CFO.

Sales, Meet Credit; Credit, Meet Sales
The relationship between sales and credit is as important as your relationship with your customers – and you can be sure if the former is suffering, it’s only a matter of time before the other will. The credit department should act like a strategic business partner instead of a barrier to sales, aiding the sales team in their efforts to grow company revenues. An automated deductions management system is the only practical way to realize this goal in today’s complex business environment. There is more than just time wasted with the lack of information, loose controls, and significant manual effort that most credit departments are strapped with. The real loss is customer frustration, unresolved disputes, un-seen but preventable deductions, and revenue. The bottom line is that the more time collectors are able to spend on the phone with customers, the more money they will be able to take in, and the closer aligned credit is with sales, the fewer disputes will arise in the first place.

Joshua Burnett is the CEO of 9ci, Inc. 9ci offers a proven, fully integrated, web-based software solution to handle auto cash application, dispute/collections tracking and deduction management, and trade promotion management issues, all complimented by a robust award winning analytics suite.