David Schmidt

INTRODUCTION
Disputes, deductions and chargebacks have always been a part of the commercial collection scene. However, it was the automation of the supply chain management function, which not only ushered in the concept of just-in-time inventory but also created an explosion in payment deductions that over the course of the 1980's turned disputes into a major credit management challenge.

The companies that were automating supply chain management started a movement towards making greater vendor compliance demands on their suppliers, and then exacting non-compliance penalties in the form of payment deductions. The new software systems supporting the procure-to-pay (P2P) process were able to handle the details commensurate with a heightened vender compliance environment while the AR software facilitating order-to-cash (O2C) transaction processing were not yet able to manage this development. The result was an increasing dispute resolution burden that credit departments had to address manually due to the absence of effective AR software utilities.

Figure 1. While credit department staffs decreased roughly 10 percent between 2005 and 2009, the number of full time equivalent (FTE) employees dedicated to deduction processing increased from 1.5 to 2.5 FTE’s Source: Credit Today's 2010 Staff Benchmarking Survey

1. Easily configurable to handle all contingencies, which often change
2. End-to-end automation to eliminate operator interference in process completion
3. Rules defined for the entire process to ensure next steps are actually taken
4. Support by a matching engine (usually associated with auto-cash solutions), which facilitates the identification and coding of disputes during the cash application process as well as periodic (at least monthly) automated matching operations to clear off related adjustments and balances

1. Automatic assignment of processing tasks: To ensure compliance, only one handler should be working on a dispute at a time -- all others are locked out. When one handler completes their task, there is an automated pass-off to the next handler. In addition, some tasks may be handled automatically in the background such as notifications and electronic document retrieval. It is also vital that when necessary, task assignments be driven through the sales/customer service portal. Rule-based dispute resolution workflow cannot be confined to just the credit or accounting departments. It must transcend the receivables area to incorporate participation by all other internal and external partners.

2. Enforce user verification to certify all required approvals: Another compliance feature needs to be built around user security and approval authorities. The system should proceed to the next step only if the appropriate data has been entered or otherwise captured and it is consistent with the user's selection. Selections or approvals that fall outside of predetermined parameters should be immediately flagged for correction or for verification based on the acquisition of updated data or documentation.

3. Ability to define parallel paths: There are two situations where this is necessary. Because multiple disputes can be related to a single item (e.g. both a pricing and quantity deduction taken on a single invoice line item) there need to be parallel workflows. Multiple reason codes on a single item will require multiple resolution workflows. The other scenario requiring parallel paths occurs when no action is taken by a handler. 'Action' taken advances process. 'No action' taken within cycle time parameters initiates a parallel process to ensure there are no delays in resolving open issues.

4. Provide decision routing: In most situations, only two way decision trees are required (e.g. true/false). However, an advanced system also needs to handle multiple decision scenarios. For example, there will be times a handler will not be able to rule a claim as either valid or invalid, but must also be able to choose that additional information is required before a decision is made or that the work completed so far requires correction. In those cases, the capability of backing up the workflow a step or two so the additional documentation can be acquired or previous steps corrected needs to be built into the system.

5. Capable of interactive required actions: Sometimes there will be a need for a handler to interact with what otherwise would be an automated action. A common scenario involves the sending of any sort of correspondence. In most cases the system will generate and send emails and faxes automatically, but sometimes the handler will need to add a note or otherwise edit the message. Another frequent situation involves data capture. In most cases, the system should be able to automatically acquire electronic documents such as a Proof of Delivery from a carrier, but on the occasions it cannot the handler will need to acquire the POD manually.

6. Enforce resolution state: The system needs to not just drive the resolution process to a final determination (Valid or Invalid), but it also needs to complete the task associated with that determination. For example, if the final resolution state for a deduction is that it is an invalid claim, then the system needs to return to it to an appropriate status in the collection process workflow. Conversely, if the claim is valid the system should process the appropriate credit or adjustment.

7. Provide a comprehensive audit trail: One of the benefits of automated processes is that they can provide 'evidence of control within the system' -- a key point auditors look for and which is difficult to document with manual processes. The components of a comprehensive audit trail is every action date and time stamped as well as associated with a user ID. Claim status is also tracked along with any notifications made. With that done, reporting software can provide auditors with all the documentation they require as well as giving the process manager the tools necessary for performing root cause analysis.

8. Provide a conceptual model of each distinct exception process: Because designing comprehensive and efficient dispute resolution processes is a major challenge, the software needs to contain tools that allow you to build automated workflows using a graphic interface. The ability to choose process components from drop down menus and then to be able to visually work with the scope and sequence of each workflow is very important. By working with a conceptual model, it is also much easier to make iterative improvements to your workflows, something that you will need to do periodically as a result of the ongoing root cause analysis of your dispute environment.