VENDOR WHITEPAPER: Faster to the Finish: A New Dawn For End-To-End Automated Dispute Resolution Workflow
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.
Disputes, in large part due to deductions, have been a growing problem ever since and despite advancements in O2C technology, the complexities of this process still cause many companies to manage a portion of the process in spreadsheets. The Credit Research Foundation (CR F) documented that deductions as a percentage of sales increased 30 percent from 2003 to 2006. Three years later, the CRF reported that deductions as a percentage of sales for all respondents have stabilized; though there was evidence of some improvement among firms primarily selling to retailers (the difference may also be attributable to the 71 percent increase in the sample size). This 2009 study also reported a substantial increase in efficiency: "a 33% reduction in the time it takes to research deductions."2 This paper looks at some of the more recent trends both with respect to industry adjustments and technology advancements around more efficient management of invoice disputes. 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 |
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Managing disputes remains a time consuming challenge for most credit departments. 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: Vendor Compliance: As previously mentioned, 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 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 inquiryor 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.
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Until recently, automated dispute resolution has focused on indentifying dispute types and providing the dispute handler with data, documentation and communication tools. Although there was some workflow automation, such as automated escalation, the primary focus of dispute management software has been information capture and sharing. These tools provided a quantum leap compared to the largely manual processing they replaced, but remained constrained by the experience and effort of the dispute handler, and the amount of time that person could allocate to their workload. In order to boost productivity to a new plateau, dispute resolution now requires a highly automated workflow environment that can be easily configured to match complex scenarios outlined in internal operating standards. So what has changed? The emergence of XPDL (XML Process Definition) as the language of BPM (Business Process Management), and BPM is the key to developing a rule-based workflow that can address the needs of the dispute resolution process. A flexible, but rules driven exception handling process is needed to address the complexity of vendor compliance agreements, the distinct resolution processes necessary for each type of dispute and the variable components that must be included in each dispute resolution workflow. This is the promise of XPDL applied within the context of BPM. In terms of dispute resolution, there are four primary needs:
- Easily configurable to handle all contingencies, which often change
- End-to-end automation to eliminate operator interference in process completion
- Rules defined for the entire process to ensure next steps are actually taken
- 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
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To realize its maximum potential, rule-based resolution workflow must achieve a very high level of process definition. After all, the goal is end-to-end automation. A failure in any area essentially creates a detour from the prescribed dispute resolution road map that in some respect will necessitate traversing it manually. That slows things down, creates added opportunities for errors, and breeds inconsistency in terms of both process and customer interactions. Accordingly, here are eight critical components that need to be incorporated within any rule-based dispute resolution workflow solution:
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
Like any other tool, automation software can only fulfill its potential with skillful use. While properly designed automated workflows deliver productivity benefits out of the box, it is the data they generate that ultimately generates the most value. In the case of dispute resolution automation, root cause analysis provides the intelligence that will enable you to gain control over your environment. Because many disputes represent recurring issues, the most important thing you can do is to identify the root cause of each dispute type. That done, in most cases you will be able to implement improvements to your orderto-cash systems or work out solutions with your customers to prevent their reoccurrence. By eliminating disputes at their source, you reduce your back-end processing burden. A key measure in this regard is invoice accuracy. By increasing invoice accuracy (the percentage of invoices that are paid without a deduction) you not only reduce deductions, but also improve cash flow. On average, clean invoices are typically paid within a week of stated terms while invoices containing discrepancies are paid 30 to 60 days late. In addition to root cause analysis, front end transaction reconciliation, which matches customer expectations, as evidenced by their PO, other order details, and/ or their vendor compliance agreement with your order processing data and sales agreement, to identify discrepancies before the order is shipped and billed, can positively impact invoice accuracy. Even so, there will always be disputes and other payment exceptions, especially with firms that create deductions scenarios through their sales promotion planning process. So while front end prevention of unnecessary disputes is a major part of the solution, so is efficient back-end resolution processing. Automated dispute resolution workflows, especially in a sales promotion planning environment, deliver a compelling return on investment because of their overhead savings and cash flow enhancements. Furthermore, the data they generate is a catalyst for reductions in profit dilution when it is used to both reduce the volume of recurring disputes and to make iterative improvements in the resolution process. By using automated dispute resolution workflows that leverage advanced BPM technology companies can transform themselves. Instead of dispute handling controlling you, you can cross over the line that puts you in control of your environment. About AvantGard
SunGard's AvantGard is a leading liquidity management solution for corporations, insurance companies and the public sector. AvantGard provides chief financial officers and treasurers with real-time visibility into cash flows and increased operational controls around receivables, treasury and payments. AvantGard helps companies drive free cash flow and reduce inefficiencies across the EcoSystem of suppliers, buyers, banks and other trading partners. For more information, visit www.sungard.com/avantgard. About SunGard
SunGard is one of the world's leading software and technology services companies. SunGard has more than 20,000 employees and serves 25,000 customers in 70 countries. SunGard provides software and processing solutions for financial services, higher education and the public sector. SunGard also provides disaster recovery services, managed IT services, information availability consulting services and business continuity management software. With annual revenue exceeding $5 billion, SunGard is ranked 380 on the Fortune 500 and is the largest privately held business software and IT services company. For more information, please visit SunGard at www.sungard.com. Contact Us
For more information, contact us at avantgardinfo@sungard.com or 1-800-825-2518. About the author: An industry analyst and receivables management thought leader, David Schmidt founded A2 Resources in 1994. Besides his consulting, he has published over 200 articles in a variety of trade and business publications including Business Finance, Business Credit and Collection Advisor magazines and is currently a contributing editor with monthly newsletter Credit Today. Co-author of the seminal text on automating collections, "Power Collecting: Automation for Effective Asset Management," (1998, John Wiley & Sons, NYC), David has also served as the lead analyst for several PayStream Advisors' research reports covering receivables automation, collection technologies, and AR imaging as well as sales tax and freight bill automation. An experienced workshop leader, he is a member of the NACM, the CRF and the Federation of Credit and Financial Executives.
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