In John Donne’s famous poem he states that ‘no man is an island’, however the profession most likely to accused of working in such a way, is that of sales. And what a missed opportunity this is, as by adopting this approach, salespeople and credit managers will continue to live on their own little islands, when they could be strongly improving the profitability of their businesses through ‘good cop, bad cop’ teamwork.
There are indeed many ways to bring these islands together. One of which is the use of overall Key Performance Indicators (KPIs) for the sales and financial departments. By way of example, it remains the case that very few salespeople receive their commission when the invoice is paid. In other words, their companies reward them for a deal before the company has earned a penny on the deal. In fact, they reward the salesperson before it is even clear whether the company will ever earn anything on the deal. It speaks for itself that, while the salesperson may benefit from this (temporarily), his or her company certainly does not. And at a time when winning profitable customers is more of an issue than ever before, this method of working simply can’t be justified.
The need for overall KPIs
Why do companies allow themselves to lose out on vast sums of money by not encouraging co-operation between Finance and Sales? I can’t find a logical explanation for it, but what I do know is that the solution for the poor co-operation is not that complicated.
All too often, companies continue to work with KPIs at the departmental level. The Sales Department has to generate as much turnover as possible, while the Finance Department provides for the lowest possible Days Sales Outstanding (DSO). But there is no alignment whatsoever between the different departments, and therefore, between those different KPIs. That is a serious and, above all, a costly problem.
How do you implement such overall KPIs? It can be done fairly simply, for example, by giving Sales a KPI for DSO. The salespeople will then feel much more involved in the collection of unpaid invoices. At the same time, give Finance a KPI for turnover. In that way, you make them aware of the importance of new customers and teach them not to think solely in terms of risk, but also in terms of opportunities.
A new form of co-operation
Working with overall KPIs has many advantages. As a company, you will be able to optimise turnover and profit. Of course that is the most important thing, certainly in times when working capital and profitability are sacred concepts for companies. Overall KPIs will also lead to new and, above all, better ways for salespeople and credit managers to work together. They can now start to play a ‘good cop, bad cop’ game.
To give an example, imagine that Sales comes into contact with a potential new customer. What the salesperson does not know is that this customer is having financial problems. Without good co-operation between Sales and Finance, two things can happen. Either Sales contracts a deal for which, at best, the payment will arrive very late or at worst, will not arrive at all. Or the salesperson will become frustrated and make a wrong move with the potential customer because, without any explanation, he or she is restrained by the Finance Department, which has screened the potential customer and discovered the poor financial position. The company does not emerge as a winner in either situation.
What would happen if Sales and Finance tried a bit of the ‘good cop, bad cop’ game?
Let’s revisit our example. Sales discusses the potential deal with Finance, in response to which Finance says that the financial picture of the company doesn’t look too good. The credit manager therefore says that it would be best if the deal was realised in part deliveries that had to be paid for within seven days. Sales can then go to the potential customer with the message: ‘The deal can go ahead, but our Finance Department does want to do it according to strict payment agreements. You know how it is: credit managers only care about money, but to make up for that, I can offer you a 10% discount.’
The credit manager defends the company, the salesperson ‘pleases’ the customer
Yes, the Finance Department will not perhaps be seen as very sympathetic, but it does protect the company’s financial interests, while Sales can tempt and ‘please’ the customer. The end result? A deal can be made that the salesperson, the credit manager and the customer are all happy with, the company wins a new profitable customer and Finance and Sales find out in very concrete terms what they can do for each other.
It is therefore hugely advisable, preferably yesterday, to put in place overall KPIs at the corporate level. By doing so, companies will succeed in bringing together the previously isolated islands and get all their departments on the same page and able to search fully for profitable customers.
Colin Sanders, head of operations at Graydon UK