Latest / Cash Flow Conversations with Fexingo: Working Capital, Receivables, and Small Business Finance / How Dispute Management Unlocks Trapped Cash in Your Receivables
Transcript
- Lucas: Let me start with a number that stopped me cold last week. I was looking at a case study from a mid-sized construction supplier — about $50 million in annual revenue — and their controller discovered that unresolved invoice disputes, just 2.3 percent of total receivables, were effectively locking up 14 percent of their available working capital. Luna: Fourteen percent from two percent? That math doesn't look right at first glance. Lucas: It does once you trace the cascade. A disputed invoice doesn't just sit there unpaid — it poisons the entire customer relationship. The customer starts holding all their invoices from that supplier, not just the disputed one. Payment cycles stretch from 30 days to 60, then 90. The supplier's own lenders see the aging report and tighten credit lines. Before you know it, that small dispute has triggered a domino effect across the whole cash conversion cycle. Luna: And a construction supplier — margins are already thin in that space, right? So 14 percent of working capital frozen is existential. Lucas: Exactly. And here's the thing — most business owners I talk to treat disputes as a customer service issue, not a cash flow issue. They think, 'Oh, we had a billing error, let's just work it out with the client.' They don't see it as a capital allocation problem. But that $340,000 they eventually freed up by fixing their dispute process — that's real money that could have been used for materials, payroll, or growth. Luna: Okay, I need to jump in here — because if a handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, that literally funds making this many episodes ad-free. And we want to keep diving into concrete cases like this, not generic advice. Lucas: Yeah, it's a small group that keeps it going — and honestly, if these conversations have moved your work forward in some small way, that's the only reason we ask. So back to that construction supplier — they had a dispute resolution process that averaged 47 days. Luna: Forty-seven days to resolve a billing dispute? That's almost two billing cycles. Lucas: Right. And in those 47 days, the customer's AP department had already flagged the supplier as 'problematic' in their system. So every new invoice got extra scrutiny, which added another 10 to 15 days to payment across the board. The dispute wasn't isolated — it was systemic. Luna: So what did they actually change? I'm guessing it wasn't just 'get better at billing.' Lucas: No, it was a three-step workflow. First, they created a dedicated dispute intake channel — a single email address and a web form. Before that, disputes came in via phone, random emails to sales reps, even handwritten notes attached to paper checks. No central tracking. Luna: So step one is just visibility. That's almost painfully obvious, but I bet most firms don't have it. Lucas: Most don't. Step two was a 24-hour acknowledgment rule. Any dispute received gets an automated reply saying 'We have your dispute, reference number X, we'll respond with findings within 48 hours.' That alone cut the average resolution time from 47 days to 22, because the customer stopped escalating. Luna: Because the customer felt heard. That's a relationship fix as much as a process fix. Lucas: Exactly. Step three was the hard part — they built a simple triage matrix. Disputes under $1,000 got auto-approved for credit memo, no questions asked. Between $1,000 and $10,000 required a manager review within 24 hours. Above $10,000 went to a weekly dispute board with the CFO. Luna: Wait — auto-approving under $1,000? That's not a typo? They just let that cash go? Lucas: They did, and here's the counterintuitive part — the average cost of investigating a dispute, including internal labor and delayed cash, was about $450 per incident. So for anything under $1,000, it was cheaper to write it off than to investigate. And surprisingly, the number of disputes didn't spike — customers didn't game the system. Luna: Because most disputes are legitimate. People aren't trying to cheat you out of $800 — they just got overbilled or billed for the wrong line item. Lucas: That's the insight. The supplier found that 70 percent of their disputes were under $1,000 and fell into three categories: duplicate billing, pricing mismatch, or quantity discrepancy. All easily preventable, but once they occurred, cheaper to resolve with a credit memo than a back and forth. Luna: So what was the net effect? You mentioned $340,000 freed up — how does that break down? Lucas: Two main buckets. First, the cash that had been stuck in disputed invoices got released faster — average dispute resolution dropped to 8 days, so those invoices started paying within the standard net-30 terms instead of dragging to 60 or 90. That alone freed about $200,000 in working capital. Luna: And the other $140,000? Lucas: That came from the reduction in 'collateral damage' — the non-disputed invoices that had been delayed because of the customer's heightened scrutiny. Once the supplier's dispute process became reliable, the customer's AP department stopped flagging every invoice. Payment terms across the board reverted to normal. Luna: So the real lesson is that disputes are a signal, not just a nuisance. They tell you something about your billing system, your customer communication, and your cash flow health. Lucas: Exactly. And the fix doesn't require expensive software. That supplier used a shared spreadsheet and their existing accounting system. The key was the workflow and the policy, not the technology. Luna: I want to push on something though — you said 70 percent of disputes were under $1,000. That sounds like a data point from that specific company. Is that typical? Lucas: It's fairly typical across industries that have high transaction volumes and standardized pricing — distribution, construction, wholesale. In professional services, the average dispute amount tends to be higher because hourly billing disputes are often about larger totals. But the principle holds: most disputes are small, and most are legitimate. Luna: So the playbook is: centralize intake, acknowledge fast, and triage by size. What about the root cause — preventing disputes in the first place? Lucas: That's the next layer. The supplier also did a root-cause analysis on their dispute data. They found that 40 percent of disputes came from just three customer accounts, and 60 percent of those were caused by sales reps entering incorrect pricing during order entry. So they added a simple validation step — the system flags any price that's more than 5 percent off the standard list before the order goes through. Luna: So prevention is about closing the gap between what the sales rep promises and what the system invoices. That's a training and system design issue. Lucas: Right. And once they did that, dispute volume dropped by 30 percent within two months. The remaining disputes were mostly legitimate delivery discrepancies, which are harder to prevent but easier to resolve quickly. Luna: So for a business owner listening right now, what's the one thing they should do this week? Lucas: Pull your receivables aging report and look for any invoice that's been in dispute status for more than 30 days. Don't just look at the dollar amount — look at the customer. If that customer has other invoices aging, you've likely got the cascade effect. Then pick one dispute and time how long it takes to resolve. Chances are it's longer than you think. Luna: And if that dispute is under $1,000, just cut the check and move on. Lucas: Exactly. The cash you free up by resolving that one dispute — and the downstream effect on the customer's payment behavior — will almost certainly outweigh the small loss. And you'll learn something about your process. Luna: I like that it's actionable immediately. No software purchase, no consultant, just a shift in mindset. Lucas: That's the point. Cash flow isn't always about big financial engineering. Sometimes it's about fixing the small leaks that, over time, drain the whole system. Luna: Alright, next episode I want to dig into the flip side — how to dispute an invoice you receive without burning the relationship with your own supplier. Lucas: That's a great angle. There's a right way and a very wrong way to do that. We'll cover it next time.