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It's pretty standard for sales and credit management to come at things from opposite directions when it comes to customers - but what's less common is the two acknowledging that close cooperation can significantly enhance both a business's bottom line and its longevity.
A common scenario is this: the sales team gets the deal done at all costs, then a little way down the line, the credit management team holds their sales colleagues responsible for failing to adequately scrutinise a customer's creditworthiness or the terms of payment agreed in the deal. In some cases sales actions may even impede default protection measures.
The flipside? Sales staff lament the fact that their colleagues in accounting are interfering busybodies who regularly compromise their hardwon client relationships when they issue yet another reminder notice or stop a delivery due to unpaid invoices.
On the face of it, tensions between sales and receivables management seem to be inevitable. The former prioritise increasing the company's turnover and are measured by the contracts they finalise - not if and when customers finally pay. Then the receivables manager's focus however is on safeguarding liquidity by minimising outstanding receivables and default risks. Essentially ensuring the company's very existence.
However, if both sides are able to cooperate closely, outstanding receivables can be settled earlier, improving the liquidity of their company and subsequently its chances of long-term survival for the benefit of all.
Often, these scenarios happen due to a basic lack of communication. The channels may be in place, but inadequate communication gives rise to a host of misunderstandings. Sales people are often unaware of the complexities of debt collection: at the other end of the spectrum, credit managers do not understand the (mainly conflicting) pressures on their sales colleagues.
As a rule, the sales team will negotiate payment terms with buyers because trade credit can be a useful bargaining chip. This can however lead to a maze of terms and conditions, sometimes even resulting in a single customer receiving a different terms with each new purchase. When payments are due, the buyer has a bevy of excuses available to prolong payment periods. Popular excuses can include claims that special due dates and conditions had been negotiated or complaints about the product or service to stall for time. Meanwhile, the invoice still isn't paid and the credit management team loses precious time checking with the sales team in order to verify the customer's claims. No one wins.
It's also worth acknowledging that sales teams are more likely to be influenced by external market conditions. "The market demands these conditions. Our competitors are doing it too." These are common arguments that frequently herald conflict. This can become a problem if in a payment dispute the sales team sides with the customer in order to avoid damaging business relations. Adept late payers will often wait for several reminder notices and employ a set of delaying tactics, e.g. complaints or demands for price reductions to prolong their trade credit free of charge.
Pooling resources is a good thing. Better still, it makes sense for sales and credit management to work together in a structured way to keep late payments and payment defaults to a minimum. It's a win-win situation. Here's why.
A balanced risk and sales policy offers a fantastic opportunity to enhance both profit and liquidity. Based on corporate objectives clear targets should be set, e.g. by linking higher sales to more stringent credit assessment procedures. Senior management should therefore define at the outset the importance of credit management and sales within the business strategy.
Transparent guidelines for cooperation should be implemented so that both parties are aware of its importance and the processes involved. The heads of sales and credit management should clearly commit to cooperating.
Mutually binding terms and conditions should be clearly articulated to both sales and credit management teams so that they know what they need to factor in:
This provides both sides with an excellent opportunity to discuss their respective perspectives, openly address any issues and look for mutual solutions in areas such as:
A framework for the regular exchange of information should be established. For example, credit management could provide the sales team with regular status reports on due dates and payment delays. Planned reminder letters or calls to chase payment should be shared and discussed. This is also the opportunity for salespeople to share any special conditions agreed in any sale, or any likely complaints.
It may sound tough, but if sales commissions are related solely to turnover, the temptation will always be for sales teams to focus on getting the sale at any cost – rather than getting the balance paid. A simple shift, relating sales to a settled balance rather than a signed contract would effect a significant shift in a company's credit culture.
To sum up, smart businesses have figured out that fostering a close connection between credit management and sales is vital for a healthy corporate balance sheet. It engenders trust, helps everyone on both sides understand what each other's pressures are and drives a healthy sales environment.
How do we know this? At Atradius our job is to help businesses to safely sell their products and services on credit terms. We help thousands of businesses, the world over, improve their receivables management, every year.
Salespeople often have unparalleled insight into important customer information that credit teams would otherwise find difficult to obtain:
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