The Hidden Costs of Failing to Resolve Claims
When we hear the word ‘Claims’, we start to panic. Why? Most managers and companies go straight to the bottom line. How much is this going to cost us? The response is understandable; it’s logical and tangible. However, ‘hidden’ costs can be just as damaging. It is crucial to gain awareness of these impacts and craft a new approach when resolving claims, to save costs and increase success.
What are claims?
In a ‘cash management’ setting, we look at client claims. Often when handling clients’ cash, they expect a certain amount back. They will lodge a claim if the amount returned is less than expected. In black and white, it appears obvious. However, there are many reasons discrepancies appear. Investigations sometimes reveal simple errors/ miscalculations are the key to resolving claims. Unfortunately, most companies do not record a clear audit trail (with documentation) to find the issue and eliminate the claim. Instead, they incur the costs even though they may not hold any accountability. It is in the best interest of all companies to have an effective claims-handling process in place. Otherwise, they are left vulnerable.
Resolving Claims: Payouts
It is no secret the most visible impact of claims is payouts. If something goes catastrophically wrong, a company can be liable for a payout that could be its ruin. One of the most publicised accounts occurred in 2006 with the German Cash-In-Transit company, Heros. With a 50% market share in Germany, the country feared “running out of cash” due to senior staff embezzling over €350 million from its clients. The fraudulent funds went to support the failing companies’ subsidiaries. The vast amount of cash ‘vanishing’ meant they could not afford the payouts to repay customers. Heros went into solvency in February 2006 and is a prime example of how failure to pay customers their dues can be fatal.
Heros’ example is on an unprecedented scale. While the issues may not be as significant in other companies, similar problems manifest in other ways. For instance, high volumes of high-value claims can lead to a down period if not resolved in a strategic manner.
Resolving Claims: Reputational Damage
The importance of maintaining healthy clients relation is critical in any industry. Particularly regarding high-value clients. In the cash management industry, most clients bring high-value contracts. The community is small, and word spreads fast. If you operate in the industry, you will undoubtedly have heard horror stories where clients switch suppliers due to poor performance. One of the biggest reasons for client dissatisfaction is failing to fulfil the contract successfully.
Clients must be dealt with quickly, whether they submit claims due to reporting errors or genuine missing cash. Unfortunately, if you cannot promptly identify the cause of the claim, you face avoidable payouts or frustrated customers. Clients only have so much patience. If this pattern is continuous, they will go elsewhere. Unfortunately, operating in a small market, word catches on quickly. The reputational damage of not resolving claims and poor client satisfaction will make potential customers think twice before choosing you as a provider.
Resolving Claims: High Labour Costs
Two characteristics of claims result in a need for a larger workforce.
The complexity of claims
The number of claims
If a claim is submitted, it often relates to an exception identified in the reconciliation process (e.g. X amount has gone to A instead of B). Straightforward claims have a quick resolution. However, resolution can drag out for complex claims without an efficient reconciliation process or an effective investigation process. Fast resolution is essential to maintain client satisfaction. Complex claims with no effective process lead to an increased workload. One way to combat increased workload is with an intelligent solution to automate reconciliation and provide a workflow for investigation and resolving claims.
Poor reconciliation can also lead to poor customer reporting. The cash management industry has deeply integrated outdated processes. An output of these processes is the inability to handle large volumes of data from multiple sources. As a result, clear audit trails with documentation are not recorded, so finding the root cause is time-consuming when claims arise. Again, solutions now exist to overcome these challenges, and the emphasis must go towards digital transformation. An intelligent solution will save on workload and, consequently, labour costs.
Resolving Claims: Loss of Control
It is near impossible to avoid claims 100%, but you can reduce them and increase the chance of fast, low-cost claim resolution. The more claims, the greater the complexity of overall claims handling. As stated, the cash management industry’s current claims-handling infrastructure needs modernising.
Companies are exposed without an effective process in place. You cannot identify errors without a clear audit trail recorded in one place. We have touched on how an innovative solution can support resolving claims, but it can also increase visibility. Straightforward claims are resolved quickly. More complex claims need thorough investigation, and visibility is increased with a tool to support the investigation. For example, internal theft is easier to identify with a solution in place.
Additionally, with claims data recorded in one place, data is easier to analyse. In today’s environment, data and reporting are fundamental for any organisation. Reports and analytics on claims increase an organisation’s transparency, flexibility and agility.
So, how can we improve?
We need to increase awareness of the importance of resolving claims & handling them to reduce financial costs and mitigate indirect impacts. Current processes are not working. Digital transformation is the overarching term many organisations adopt to describe their modernisation initiatives. With tools out there in the marketplace, it is now up to organisations to assume new approaches to improve efficiency and business performance.
Proper claims handling is not just a cost-saving exercise; you can mitigate crises and reputational damage, increase workflow efficiency, reduce labour costs, and increase control and visibility over all operations.