Confident Cashflow

Virtually every business transaction that concerns another business involves credit.

There’s a bit of a joke in sales teams that credit management is sales prevention.

The sales team’s objective is to sell more of their product or service and find new customers. The credit manager‘s role is to protect the business’s credit risk and cash flow.

This is a real chicken and egg situation, as both teams are in fact doing their job perfectly well. A sales team who doesn’t make sales is as pointless as a credit management team who doesn’t control who they give credit to and how much.

Potential Conflicts

There are a few areas of conflict of interest between the two departments who are, generally, chasing the same goal; to get paid.

These conflicts are:

• Past invoices which haven’t been paid, and yet the sales team are pushing for future sales and therefore more credit.

• The credit team may put an account on stop until previous invoices are paid, which could be viewed by the sales team as detrimental to future client relationships and therefore future business.

• The client may have been allocated a specific credit limit (e.g. £10,000) but the sales team have made sales exceeding this amount (e.g. £20,000) meaning the sale will be refused.

Such conflict is detrimental to the business as a whole and therefore it is important to find a happy medium between the sales and credit teams. So, how can you do that?

All on the Same Side

Ultimately, the purpose of sales is not to meet quotas or win incentives, but to bring in the cash for the business.

The sales team make the sale. They do the leg work and convince the customer to commit to a product or service. The credit department makes sure that sale is converted into cash.

Therefore, it should be clear that credit and sales are both needed in order to close the sale and get the money into the bank account. Neither is efficient without the other.  

Despite common appearance, sales and credit are not working in opposition. They are ultimately working towards the same goal. That of ensuring timely payment for the product or service.

The credit management team are not there to prevent sales growth. They are ensuring credit isn’t overextended and cash flow is reliable. A sale is only as solid as the client’s ability and willingness to pay.

By working closely in conjunction with each other there should be no need for accusations of the sales team over promising or the credit management team blocking sales.

Communication

As with many preventable challenges in business, communication really is key. And that is very much the answer to ensuring that sound commercial, risk managed decisions are made between sales and credit management teams.

Keep in mind that both teams have the same objective: for the potential client to spend money with the company and pay up on time.

So, to keep both teams working together they should have clear communication channels.

• Both teams should have a clear process that is followed diligently.  Often it can be rogue, ad hoc decisions that can cause the most conflict.

• Each team should have a clear understanding of the other teams’ processes and the reason behind them, so they can see how they all fit into the bigger picture.

• Both teams should be prepared to listen to the other team. If the credit team have imposed a credit limit to a client as they have a poor credit history, the sales team should respect this. The credit team should do what they can to give their sales team options.

• Both teams should be involved in the process from the very beginning, voicing opinions on how the processes will affect their work directly, and therefore arriving at workable compromises.

• Compromises could be made. If there is a credit limit on a client, or they have questionable credit history an upfront payment (e.g. 50 %) could be considered. Both teams then can proceed with their work processes.

Continued communication, collaboration and even working closely together ensures that each team develops an understanding and respect for what the other department is doing whilst also seeing how they both fit into the wider objectives of the business.

Using Credit Management Strategy to Increase Sales

Although both sales and credit management teams have key roles in any business, having a robust credit management strategy in place can help to set sales targets and sales processes.

It is easier, and more cost effective, to sell more to existing customers than to try and get new ones, But not all customers are created equal.

The credit management team can help identify those customers that who could afford to buy more. Also those that are already at the limit of what they can afford. Pre-qualifying in this way helps the sales team to focus their efforts on profitable sales with low maintenance customers.

If the credit strategy is robust and followed by both credit and sales teams it will ultimately put the business in a stronger position. Resulting in consistent cash flow and reliable clients.

It is worth investing time and capital into producing a robust credit management strategy which will eventually enable the entire company to grow.

If you would like to discuss creating such a solid credit management strategy for your business, why not book a call with us today.