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Credit v Sales

By CreditMan Tuesday, July 22, 2014

Credit v Sales

Problem / Solution

The conflict between credit and sales departments is not a new issue, but it is one that proves detrimental to the survival and future growth of even the largest companies in the UK. Both departments work for the same team, but are often at odds with each other.

The pressure of achieving sales targets is generally recognised and appreciated in most large businesses, but is it also widely recognised that credit control teams also work to strict targets and deadlines?

It’s extremely important that both functions work together effectively to ensure that the growth of the business is managed effectively.

Problem

On the one hand, the sales (and marketing) team are responsible for bringing in new customers, and increasing business from existing ones.

The majority of sales teams are motivated by commission, which can lead to tunnel vision with their approach.

On the other hand, the credit function ensures that you are engaging with the right customers to get paid (on time) for the products and services you offer, by imposing a system of credit checks and limits, and collecting payments from new and existing customers.

At its extreme, one department views the other as the overpaid people with their flash cars, who do very little, earn a lot, and are the cause of the majority of bad debt issues that they are dealing with daily.

In return, the other department is seen as a “barrier” to selling, who sit out of the way, in an office where there is no understanding of how “the real world” works.

There is, after all, an inherent conflict in the roles undertaken by each department: sales teams are driven to increase the numbers but credit teams are there to ensure adequate cash flow.

The reality is that these historical internal perceptions, and the resulting conflict, almost always arise through lack of understanding and little or no communication.

These age-old sales versus credit departmental stereotypes need to be irradiated, and there has to be willingness on both sides towards the common goals of the business, to survive, and grow.

Solution

In essence, one function cannot survive without the other. It therefore stands to reason that if each department had a better understanding of the role undertaken by the other, there will be fewer conflicts occurring.

Both sales and credit functions are ultimately on the same side, and it’s critical that they work together to bring in the type of business that results in overall company growth, with the minimum amount of bad debt.

A holistic approach should be taken by a business involving sales, credit and the financial director working together to achieve an effective strategy.

Educating the respective teams will help each other to understand the pressures involved as well as the rationale for certain actions from one function that can otherwise be perceived as detrimental to the other.

It’s in the interests of both departments to meet regularly, learn about each other’s roles and work together to achieve a common goal. This culture of understanding has to be driven from the top throughout a firm, or in my experience, it is unlikely to succeed.

In addition, more and more sales teams have moved towards a structure where their reps are only paid commission once order or payment has been received. In doing so, they have aligned the goals of sales and credit.

Sales teams are driven to support the activities of credit control by ensuring that payments are made in full and on time, while also maintaining a good on-going commercial relationship.

If your sales teams are still being paid commission at the point of a signed order, then no matter how conscientious your reps are, you are simply inviting conflict between sales and credit, and ultimately creating the potential for bad debt.

Conversely, I recently met with the Head of Credit for a large national firm, who told me that her bonus structure is aligned with the sales force, based upon new business and account growth. Unusual and potentially conflicting I know, but is it any different than aligning sales bonuses to netted payments?

Eight steps to consider

The reality is that there will always be customers who won’t play ball, regardless of any internal progress in harmonising the credit and sales functions. So it is important to make sure you have robust checks and limits in place to ensure that both sales and credit targets are met. Although we are the UK’s 2013/14 “Legal Recovery Firm of the Year”, we would always recommend to our clients that debt prevention is better than cure. For example:

1: Ensure that your sales team understand your credit policies and your credit control team understand your sales processes.

2: Educate your sales teams on the consequences of ignoring credit limits as well as debtor issues created by incomplete or incorrectly completed order forms.

3: Initiate regular meetings between heads of sales and credit to review any recurring debtor issues, to see if these can be addressed at the root cause.

4: Make sure sales reps are not making any representations about your products, services or terms and conditions that cannot be backed up. There are serious consequences for doing so, discussed in more detail here.

5: Make sure your terms and conditions are up to date and consider retention of title clauses.

6: Consider personal guarantees.

7: Use our interactive “Identify cash flow leakage” tool to highlight any areas for improvement in your order to cash process.

8: Use our free Credit Management Guides to help improve your credit control function, assist in training new credit controllers, and as a welcome refresher for more experienced members of your team, who may be set in certain ways.

Want advice specifically for you?

If you want help or advice on debt collection, enforcement or litigation contact me directly.

I’ll gladly speak with you and tell you what options you might have.

It might be eye opening. Or it might just confirm what you already think.

Either way – you have nothing to lose.

Qamer Ghafoor, Partner and Head of Commercial Litigation & Debt Recovery

01332 340 211

qamer.ghafoor@flintbishop.co.uk

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