Editor’s Note: This piece is part of our “Executive Input” blog series sponsored by Capital One Trade Credit — a trusted affiliate member of the National Association of Wholesaler-Distributors (NAW). The series extracts key takeaways from short interviews with distribution executives — often answering three straightforward questions about challenges they are trying to solve with technology. These leaders could opt to have their name and company omitted from the blog to speak freely. See all parts of the series at the end of this article.

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Nobody likes to be played, yet every distributor deals with its share of fraudsters — and it’s a bitter pill. One distributor with $900 million in annual revenue, and a member of the National Association of Wholesale-Distributors (NAW), eats fraud losses to the tune of hundreds of thousands per year. While they successfully eliminated internal cash theft years ago, customer credit card fraud remains an irritant, says the company’s controller.

“These are situations where a customer uses a fake credit card or they dispute charges immediately, because they do delivery and then they don’t sign for it — they win the dispute because they knew the loophole,” the controller said.

For customer convenience, the distributor will accept credit cards over the phone, for which they incur a big hit on fees. Plus, because there’s no actual validation, the company is susceptible to fraud. It doesn’t help too much if a delivery driver sees the credit card onsite if the card isn’t touching a device, so the distributor is now looking into security devices that delivery personnel can use to help protect against this particular form of fraud.

Dispute fraud — sometimes called friendly fraud when the perpetrator is the customer and not an outsider using a stolen card — is a perpetual challenge unless the company can obtain a physical signature. Ultimately, someone has to pay the piper, however, and this multi-location distributor tends to hold its branches accountable.

“We charge the branch to let them know they made a mistake — ‘you took that payment that you shouldn’t have,’” the controller said. “And that’s their teaching moment, I guess. So we push those disputed charges back onto our field and give them operating statements so that they actually see it, and they know they were charged.”

Sadly for customers, the worst (aka most common) cases of fraud still occur where check payments are involved. It’s a delicate but indisputable issue if the customer’s check is intercepted in some way. It’s their problem, yet the distributor isn’t heartless in the matter.

“If they want to send us a check, honestly, it is on them, and they will have to deal with their bank on that dispute,” the controller said. “But this is a relationship, and we understand. We’re going to work with them. We’ll give them 30 more days and we’re not going to charge them a service fee or anything. But we also tell them, ‘Here’s a safer way to pay us if you want to pay via ACH or credit card. But it’s still a very common pain point.” The company is large enough, he added, to withstand these types of fraud-related gales.

Automation to Beef Up Efficiency

Beyond the daily pay battles that must be waged in accounts receivable (A/R), automation factors strongly into this distributor’s vision for the immediate future of its receivables department.

The company currently lacks a cash application automation software, but that’s about to change.

Through its online ERP portal, customers can select which invoices they want to pay and those are cleared on their accounts each night on the ERP system.

“We have a level of probably 30% that are automated and cleared, and some of that is also through our lockbox, where we get files from our bank and upload them into our ERP, and it’ll auto clear,” the controller said.

“But even that lockbox has about a 20% fail rate because the customer might put in a PO or an order number instead of invoice number, and our ERP requires the invoice number,” he continued. “So that’s why I’m looking at an AR automated cash application tool that could take that lockbox file, interpret it as an order number, change it, and then give me a file that integrates with P21 (Prophet 21 from Epicor) and can clear based off our composite report from our bank and then our lockbox report, as well.”

This is on his bucket list to implement by 2026.

“Some NAW members have been talking about BlackLine, so that’s one that I’ve looked at recently,” he added. “Unified A/R is another one that integrates with P21 that we’re looking at. There’s a host of them that I’ve been doing demos with over the past month or two.”

More in Our Executive Input Series

• • The AR Fast Track: A One-Year Plan for Scalable Automation
  • Step on the Gas to Bring Home the Cash in AR
  • Dulling Accounts Receivable Pain with Terms and Technology
  • Counting Down to a Self-Serve World: Who Will Be the Pumpkin When Midnight Strikes?
  • AI, ERP Top CIO Hot List
  • Seamless and Sameness: What Really Matters in the Delivery of Self-Service?