CHAPTER 4: CREDIT MANAGEMENT
4.7 Relationship Between Credit and Sales
The credit department’s relationship with the sales department is important since the internal process typically begins with sales either receiving an order from a new customer or the sales representative trying to open a new account before an actual order has been taken. Sales reps’ loyalty is usually to the customer because the customer represents their income. The relationship between the sales department and the credit management team can be adversarial because the two departments can have conflicting goals.
The key role of the sales staff is to get as many sales as possible from as many customers as possible. Once they have a customer making an order, they have to push for add-ons.
Credit management’s key role is to protect the company’s cash while supporting the DSO goal. When evaluating a new customer, a keen eye is needed to look at their financial records and payment history to determine account status, terms for payments of goods and services, and payment method. Most credit management teams will only extend a credit limit that they are sure can be paid within terms. The more that the policies and procedures for credit are both transparent and objective, the less the sales team will view this as limiting potential sales of product or services. As a result, an adversarial relationship can be eliminated. For the organization to be profitable, the need to both protect cash and support sales efforts must be balanced. Therefore, the AR team must develop a process that will nurture a positive relationship between salespersons and credit managers. When the process is properly designed, both sales and AR can achieve their goals—a win-win situation. The question is: How can sales and credit management work together to achieve the highest sales with limited or acceptable risk? Are these two departments really adversaries or can the two departments align their goals with the company’s best interests? With today’s technology and resources, this can become a reality. Some of the suggestions and best practices may sound difficult, but if companies are to make a profit and stay in business, the goals of both sales and AR must be linked together. It is possible to never say “no” to a potential customer, even if they do not meet the company’s normal credit standards. However, it may require changing corporate thinking and some new payment methods. If credit managers go out in the field with the sales reps, and if sales training includes a week in the credit department, a greater understanding of the total end-to-end order-to- cash process will enable both departments to work together better and achieve best-in- class results. This can be the first building block in developing an effective sales/credit relationship. The AR department needs to initiate building the relationship with the sales reps since the AR department has the most to gain. A relationship needs to be built to gain trust. The sales rep can be extremely helpful in making the proper credit decision for the company, especially with borderline accounts. Because the sales rep has firsthand knowledge of the customer, whereas the credit team is remote from the customer, sales can witness the condition of the business. What is the condition of the physical property? Is there inventory? Are there customers? Have they seen any local media articles about the customer?
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THE ACCOUNTS RECEIVABLE SPECIALIST CERTIFICATION PROGRAM E-TEXTBOOK
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