How AI-Powered Claims & Deductions Improve Customer Experience

Few things kill the mood in accounts receivable (AR) quite like a claim or deduction notification. They’re slow. They’re messy. And once one starts, you know your team’s about to lose hours digging through documents, pinging colleagues for updates and praying the customer hasn’t already called to ask, “Is this resolved yet?”

The universal pain of traditional claims and deductions management — and what companies can do about it — was the topic of a recent webinar “Improving CX Through AI-Powered Claims & Deductions.” Keep reading to learn why manual processes have become obsolete, why AI-driven automation is the future, how both you and your customers benefit from better claims and deductions management, and how to start your own automation journey.

The problem: Traditional claims & deductions processes frustrate everyone

Whether you look at it from the perspective of your internal team or your customer, dealing with claims is ... less than ideal, to put it nicely. It’s an issue that often negatively impacts both sides of the transaction.

Why claims & deductions exasperate your employees

Whether you have a dedicated Claims and Deductions team or your Customer Service team is handling claims, old-fashioned management methods are a drag.

• Manual document consolidation — Team members have to access multiple different systems and portals to track down proof of delivery, bills of lading, invoices, contracts and other supporting documentation for the claim.
• Invisibility — When a claim is handled manually, it’s very difficult to know its status, when it’s going to be resolved, who’s court it’s in and who’s responsible for the next steps.
• Lack of communication and follow-up — Manual processes weren’t designed for quick and easy communication either internally or with your customer. Once a customer submits a claim for a deduction, there’s no way for them to track it unless they call or email you for an update.

But it’s not just your Customer Service team that struggles. Manual processes also frustrate your non-customer service employees, because dealing with claims takes them away from their regular duties. For example, a salesperson may have to look up the pricing in the original contract to help validate a deduction. Or the manufacturing supervisor has to determine what caused an error in production as part of a claims case.

Although collaboration between internal teams is an important part of handling claims and deductions, it’s not always done well. Employees can feel like they’re constantly being pestered or always having to nag someone to get what they need.

How claims & deductions irritate your customers

All any customer wants is for their order to arrive on time and in full. When that doesn’t happen, they’re upset before they even submit a claim. A slow, hard-to-follow claims process only adds to the frustration.

• Opening a case is cumbersome — Manual, disconnected claims processes with no central data repository often result in the customer having to explain their claim multiple times to various people on the Claims team. Even worse, the Claims team might put the burden on the customer to gather necessary documentation when that’s not their responsibility.
• Checking on a claim status is a pain — With no easy way for a customer to check their claim’s status, they’re forced to call and email the Claims team repeatedly to find out when a resolution is expected.

Top challenges within deductions & claims management

Research from The Hackett Group’s 2024 C2C Receivables Study shows companies are very much aware of the shortcomings of traditional claims and deductions management.

Top challenges within dispute/deduction/claims management

1. Need to improve communication with sales and/or customer service departments
2. Need to improve communication with customers, including electronic interfaces of dispute information
3. Need to enhance existing dispute management/resolution tool(s)
4. No dispute management/resolution tool(s)
5. Lack of a dedicated dispute management team
6. Lack of dispute resolution metrics
7. Customer compliance with proof of delivery requirements
8. Delivery and/or installation issues
9. Lack of a dispute management process/policy
10. Poor customer billing timeliness and accuracy
11. Lack of compliance to product return policies/procedures
12. Product quality
13. Increase in disputes due to customer inability to pay
14. Other

Most customer claims aren’t random — they’re preventable

Claims are a fact of life — or are they? Excepting trade deductions, the vast majority of claims are preventable. Just look at what The Hackett Group discovered in their 2024 C2C Receivables Management Study: Most non-trade deductions were caused by something breaking in the supply chain or the customer onboarding process. Those are things you can fix.

Dispute/Deduction/Claims management: Top reasons (by volume and value)

Top reasons include price/discount, quantity, quality of service/product, purchase order issues and billing errors. Track dispute codes and perform regular root-cause analysis to drive elimination activities.

However, if you’re doing business with a lack of technology, it’s much harder to determine the valid claims and conduct root-cause analyses to learn why they keep occurring. As a result, you’re stuck in a nightmarish cycle of being bombarded with claims that overwhelm your team, leaving you little time and even less visibility to get to the bottom of what’s causing all the claims, which means the root causes don’t get fixed and claims keep pouring in.

The solution: transforming claims & deductions management with AI-driven automation

In a world where claims are still usually handled via emails, spreadsheets and sticky notes, automation is a game changer for three main reasons.

Automation speeds up claim resolution

By extracting and validating data from a claim as well as aggregating necessary information from multiple sources, AI technology gets the ball rolling on a resolution before a human even sees it. Automated review and approval workflows ensure the right people have eyes on the claim and automated reminders ensure the claim remains top-of-mind. Put it all together and you get much faster resolutions. And the faster you can investigate, process and resolve claims, the lower your Days Deductions Outstanding (DDO) becomes.

In addition, speedy claims resolution helps you get paid faster. Say it takes you 10 days to investigate a claim and issue a new invoice to your customer. At that point, the clock resets on your customer’s payment terms. In effect, you gave them an extra 10 days to pay their outstanding balance, so instead of paying you in, say, 30 days, they’re paying you in 40 days.

Automation improves accuracy in identifying invalid deductions

Focusing on invalid deductions first and clearing them is key. Why? Cashflow. If someone has short paid you (a.k.a. taken a deduction) and it’s invalid, you are due those funds, so you want to find those right away and collect. However, inefficient, manual processes can make chasing invalid deductions — especially smaller dollar amounts — not very cost effective.

AI-driven automation helps you minimize the time and cost needed to spot invalid deductions by:

• Analyzing data to predict the validity of deductions so your team can prioritize potentially invalid ones
• Gathering supporting documents from sources such as emails and customer portals and linking them to the appropriate deduction
• Assigning reason codes to deductions so they can be routed to the appropriate people for resolution
• Collecting the necessary supporting data (sales invoices, pricing contracts, proof of delivery, trade promotions, etc.) to validate pricing errors, shortages and trade deductions

Automation improves visibility

Quick: How much of your past due balances are tied up in claims and deductions? Do you actually know?

With a central, automated claims and deductions system in place, you could find out with just a few clicks. By automatically ingesting your claims into a centralized platform that everyone can access, AI technology gives you complete visibility into not only your deductions but much of your supply chain and value chain as well. It’s a powerful tool for identifying improvements you can make to your AR portfolio as well as spotlighting upstream issues that may be impacting your deductions process.

In a nutshell, automation allows you to change deductions from a completely reactionary process (where you wait for the deduction to come in and then start validating and resolving it) to a truly proactive process (where you already know what deductions may be coming in and have some analytics and predictability on whether a deduction is valid or not).

If you’d like a deeper dive into automation’s impact on claims and deductions, we’ve written about it at length on our blog:

• What is Deductions Management & How Can You Improve it with AI-Driven Automation?
• 6 Straightforward Ways to Improve Deductions Management for Suppliers

Automation is the future of claims & deductions management

When The Hackett Group polled their clients for their 2024 C2C Receivables Management Study, they discovered that although a third of respondents didn’t have a workflow-enabled deductions management system in place yet, nearly half already do. Clearly, organizations are realizing the importance of modernizing their claims and deductions processes.

[Use graphic from webinar PPT]

Do you have a workflow-enabled dispute management system?

• 46% - completed and implemented
• 21% - in process of implementation
• 12% - currently evaluating this
• 21% - no plans to address this

Within that platform, do you have a performance dashboard for monitoring all disputes?

• 38% - completed and implemented
• 24% - in process of implementation
• 16% - currently evaluating this
• 22% - no plans to address this

The business impact: How do organizations benefit from AI-driven claims and deductions automation?

The many quantitative and qualitative benefits of automating claims and deductions can be grouped into four main categories: cash, cost, customer experience and cross-departmental cooperation.

Cashflow impact

Cash may be king, but cashflow is the galactic emperor. It’s the number one item on Finance leaders’ priority lists, and automating claims and deductions improves cashflow by:

• Enabling more accurate cashflow projections thanks to greater visibility into and understanding of your deductions
• Shortening resolution times, which shortens your DSO because you’re not extending your customers’ payment terms while you investigate
• Lowering write-off thresholds by letting automation handle standard, valid deductions so you can focus on going after more invalid deductions

Cost savings

Deductions cost your company money, especially if a deduction has to go through multiple departments to be investigated and approved. Dealing with claims also takes people away from their core duties. In fact, companies that haven’t automated their claims and deductions management often don’t know how much it’s actually costing them to process everything manually. But our article explores just how pricey non-automated processes can be: The Surprisingly Sneaky Ways Returns & Claims Processing Costs You Money.

Customer experience improvements

As a B2B customer, maybe the only thing more annoying (even frustrating?) than having to file a claim for a deduction off an invoice amount is rarely knowing the status of the claim. Has it been received? Is it being investigated? Is it being held up for some reason? Who knows?

A slow, opaque claims and deductions process is not a great look for your company. You could have the best product or service on the market, but if you’re difficult to do business with, eventually, your customers will find what they need elsewhere.

A claims and deductions automation platform like Esker’s not only shrinks resolution times, but also makes it easy to keep customers informed of the status of their claim with built-in communication tools and integrations with customer AP portals.

Cross-departmental cooperation

Tracking down all the internal information you need to resolve a claim can sometimes feel like a finger pointing contest among the Customer Service, Finance and Sales teams. When all claims information is consolidated in a central platform, review and approval workflows automatically ping people with reminders, and an internal chat tool simplifies communication, that finger pointing turns into collaboration. 

Bonus benefit: Set lower automatic write-off thresholds

When you’re constantly digging out from under a backlog of claims and deductions, there’s often no time to step back and analyze if your company’s auto write-off amount is appropriate. And even if you had the time, manual, siloed processes make it extremely difficult to calculate how much time and money it costs your company to resolve a claim so you can determine at what dollar amount it makes sense to simply write it off.

If your auto write-off level is too high, you could be leaving a lot of money on the table. Although it can vary based on industry and company size, a common auto write-off amount is in the range of $100-$250. As a faster, more efficient way to resolve claims and deductions, automation enables you to lower your cost per claim resolution and lower your auto write-off level. As a result, you could begin recouping more money, improving revenue and cashflow.

The customer service perspective: How does a seamless claims & deductions process improve customer experience?

AI-driven automation in claims and deductions supports stronger customer relationships and loyalty in three key ways.

Creates a more consistent experience

If you’re constantly holding up claims with long investigation timelines, it wears on your customer relationship. If invoices or shipments are often wrong, it’s frustrating to your client.

When customers do business with you, they want your processes to be consistently good. They like knowing there’ll be a quick resolution each time they file a claim or take a deduction. Automation ensures faster resolution cycles, greater accuracy throughout the process and visibility into areas that may need improvement.

Builds trust

An automated platform delivers the data, analytics and reporting you need to identify problems in your order-to-cash cycle and resolve them more quickly. Showing your customers that if they experience an issue once, they aren’t going to keep experiencing it multiple times gives your clients one more reason to trust you.

Improves transparency

Automation tools like Esker’s provide an online self-service option for your customers. Instead of having to regularly call or email you asking for updates, your customers can see the resolution process for themselves. Yet according to The Hackett Group’s 2024 C2C Receivables Management Study, more than half of respondents don’t offer a way for their customers to see their claims status.

[Use graphic from webinar PPT]

Do you have self-service technology that enables customers to obtain online status of disputes?

• 7% - yes, for some customers
• 32% - currently evaluating this technology
• 61% - no, and no plans to provide this technology

A business that provides transparency into claims and deductions via a self-service portal for their customers can really differentiate themselves from the competition. By showing customers what’s going on behind the scenes and allowing them to easily interact with your team, you stand out as a premier business partner. 

How can companies begin improving their claims & deductions process?

Know your baseline: What do your claims and deductions processes look like today? How big of a challenge are you facing? Measure and track as much of your current performance as you can. The more you can quantify, the stronger a case you can make for investing in automation technology. Even if you’re already partially automated, there may be opportunities to further improve your process.

Determine what you want the future to look like: What KPIs do you want to improve? Do you want to recover more invalid deductions? If your workflow is already automated, would you like to integrate your current platform with third-party systems that can collect supporting documentation from outside sources?

Evaluate your options: Carve out time to evaluate process improvement technology and potential partners who can help your streamline your claims and deductions activities. Learn the latest best practices. Look at what industry groups and subject matter experts are saying on the topic.

How Esker supports better claims & deductions management

Esker Claims and Deductions eliminates the time-consuming, manual components of traditional processing with AI-driven data capture and automated workflows in an easy-to-use platform that:

• Centralizes all claims information so everyone can easily find what they need
• Speeds up resolution times without sacrificing accuracy for more efficient processing
• Facilitates smoother communication between teams for more effective collaboration
• Reduces the amount of invalid deductions that get approved, improving cashflow
• Enhances visibility into revenues and receivables with customizable analytics dashboards

See it in action in this short, 4-minute video.

And you can watch the complete webinar “Improving CX Through AI-Powered Claims & Deductions” any time on demand.