An invoice dispute occurs when a customer reports a perceived inaccuracy in a billing document, or is unsatisfied with a service and withholds or delays payment. In some instances, customers dispute entire invoices; in others, customers only take issue with certain charges.
Unfortunately, disputed invoices are one of the most common financial issues a business has to manage. No matter how foolproof your billing processes are, disputes will occasionally arise.
Your cash flow may suffer when your business doesn’t address accounts receivable disputes quickly and effectively. However, doing so demands valuable time and resources. Many companies are adopting automated dispute management capabilities to ease and accelerate the process.
Here’s what you need to know about common reasons for invoice disputes, traditional ways of handling them, common pain points for dispute resolution, and how automated accounts receivable software can help.
Most common types of invoice disputes
No matter what type of invoice disputes your business is dealing with, it’s critical to put an effective accounts receivable dispute resolution process in place to address issues quickly, before disputed invoices turn into bad debt. Here are the most common types of invoice disputes you may encounter.
- Unsatisfactory work: A customer may contest an invoice when a service is not delivered as expected. Establishing a communication channel for customers to provide feedback can help resolve complaints before it’s time for an invoice.
- Product complaints: If a product is not up to par, a customer may delay or refuse payment. For high-cost items, some companies build check-ins into their post-delivery process to ensure goods were received and the customer is satisfied with the purchase.
- Late delivery: If a business has included late-delivery stipulations in its contract, it can legally insist on full payment if it delivers a product or service after the expected date. However, depending on the circumstances, a company may choose to offer a discount or refund to maintain a customer relationship.
- Unclear terms: Customers may also claim that they were unaware of certain costs or conditions and refuse or delay payment. Many service providers review charges carefully throughout project negotiation—and receive contract sign-off—to avoid this issue during invoicing.
- Pricing: Service providers can also protect against disputes over pricing at invoice time by keeping a customer updated on billable hours as work progresses. But if a pricing dispute does occur, breaking a project down into different components to explain costs can help the customer better understand charges.
- Administrative error: If a customer reports an error in an invoice, reviewing the document together line by line can be helpful for both parties. If your company relies on manual invoicing processes, there may be a mistake that’s easily resolved. Conversely, the invoice may be accurate, and reviewing it with the customer can clear up the issue.
- Double billing or other incorrect charges: In some cases, invoice disputes arise when a customer is billed twice for a product or service or receives an incorrect credit card charge.
The traditional accounts receivable dispute management process
The traditional process for accounts receivable dispute resolution is lengthy, often tedious, and prone to error. It typically involves the following steps:
- Receiving notice: A customer or a company’s accounting department sends dispute documentation to an AR analyst.
- Prioritizing the dispute: The analyst logs dispute information in a tracking system, and based on the dispute resolution code, ranks the case among others in order of importance.
- Researching the issue: After identifying stakeholders potentially involved in the issue, the analyst researches the dispute and gathers documents related to the order. These can include the Proof of Delivery (PoD), Bill of Lading (BoL), and tax receipt.
- Requesting data: If documents are missing, the analyst communicates with the client or other stakeholders to request them.
- Determining the resolution: With all necessary information in hand, the analyst assesses the validity of the dispute.
- Submitting for approval and issuing credit: If the issue is valid, an analyst will typically need approval from superiors to resolve it. After receiving approval, the analyst issues a credit or debit memo to the client.
- Informing the client: If the dispute appears invalid, the analyst informs the client and asks for further clarification or closes the issue.
- Updating records: The analyst communicates with the accounting department about the dispute resolution, and the accounting team updates the status of the invoice in the company ERP systems.
- Generating reports: The accounting team generates reporting on AR disputes for company managers and executives.
Challenges in managing recurring invoice disputes
With so many steps involved in the traditional workflow for accounts receivable dispute management, it’s easy to see how the process can become a burden. And if your business deals with a significant number of invoice disputes, you know that they are:
- Costly: When accounts receivable teams deal with recurring invoice disputes, the labor costs are significant. Plus, unresolved disputes can impact revenue and hurt a company’s bottom line.
- Time-consuming: Research estimates that 15 to 20 percent of invoice disputes are invalid, but if your company handles them with manual processes, you’ll be spending a significant amount of time dealing with each one instead of focusing on higher-value tasks.
- Inefficient: Multiple departments are involved in determining the validity of invoice disputes. Siloed operations and ineffective communication tend to draw out the process and delay resolution.
- Labor-intensive: Manual dispute resolution processes require stakeholders to search and retrieve data from multiple systems, communicate with clients by phone or email to gather missing documents, and work independently to combine information from internal and external sources.
- Complex and convoluted: Without a central information hub or real-time data, there’s no visibility into the process across an organization, making it slow-going in progressing toward a resolution.
How do you handle disputed invoices and minimize disputes?
If invoice disputes are costly, time-consuming, and labor-intensive, how can your business keep them to a minimum? To approach the overall process of billing and collections productively, your organization can begin with a few basics:
- Issue clear invoices: It may sound obvious, but your invoices should clearly identify your business and include all of the information your customers need to submit payment.
- Get sign-off: Ensure that your customer fully understands and agrees with your pricing and terms. Depending on the nature of your business, providing a detailed estimate upfront may be the best route. Then, create a record of your customer’s understanding and agreement by having them electronically sign an estimate or agree to terms on a sign-up page.
- Manage short-paid invoices effectively: If a customer fails to pay the full amount of an invoice, get to the bottom of the issue quickly—it may be a simple accounting mistake.
- Understand what’s involved: No business owner wants to spend time brooding over debt collection, but being well-informed ahead of time can save you money in the long run.
Why automation software can help with accounts receivable dispute management
One of the most critical aspects of managing the invoice dispute process more effectively? Automated accounts receivable capabilities. With the right accounts receivable software, your organization can perform the core components of the process far more quickly and easily, including
Reporting: With automated accounts receivable software, you can provide your customers with an online self-service portal that will allow them to report invoice disputes. The right stakeholders in your business will receive notifications immediately, allowing them to act quickly and resolve issues before any payment delays become lengthy.
Analysis: When customers submit dispute reports via online portals, they enter information about the reason for the dispute, helping to reduce the time your organization spends researching the issue. And instead of separate back-and-forth communication by phone and email, your stakeholders can easily collaborate within the accounts receivable platform when analyzing the dispute. Additionally, many accounts receivable applications now include AI capabilities to help accelerate the analysis process.
Resolution: Working in a single, centralized platform is also beneficial in resolving invoice disputes. After collaborating to analyze the issue at hand fully, stakeholders can leverage information in the system when they communicate with customers and take corrective action, whether there’s a pricing, administrative, or operational error to address.
Resolve and reduce accounts receivable disputes with Invoiced
Want to get paid faster, spend less time on collections, and provide a better customer experience? Invoiced’s automated accounts receivable software offers cutting-edge capabilities for integrated payments, cash application, reporting and analytics, and a Smart Chasing Engine that takes most—if not all—of the collections work off your shoulders so your team can refocus their time and attention on more strategic work.
Our AR functionality can meet your specific business needs. If you need to automate billing processes for your agency or customize our capabilities for your organization, we can help.
Explore our automated A/R software offerings and schedule a demo today!
