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Tug of War

I believe that the relationship between sales and credit is frequently misunderstood.  There are individuals in sales and in credit who believe that sales and credit are, in a sense, in competition with each other.  The basic premise is that extending credit to customers is a “zero sum game” meaning that if sales “wins,” the credit department loses.  I believe that sales and credit can work together to increase profits while managing risk.

One of the best ways to do so involves working proactively with sales to determine the required credit limit for each customer. For example, you could provide your sales department with the credit limits and the A/R balances for each active account and ask them if the assigned credit limit is adequate.  If not, you could work proactively with sales and with the customer to try to approve a higher credit limit before orders are placed that would place the account over the assigned credit limits. In my experience, everyone is happy when credit limit issues are addressed proactively in this manner.
Another way to increase profits is to inform sales in advance of potential credit holds so that the

Michael Dennis, MBA, CBF, LCM

salesperson can work with their contacts to resolve these problems.

That’s my opinion.  What’s yours?

Michael Dennis’ Covering Credit Commentary. Michael’s website is  www.coveringcredit.com

The opinions presented are those of the author.  The opinions and recommendations do not necessarily reflect the views of CMA, or their Officers and Directors.  Readers are encouraged to evaluate any suggestions or recommendations made, and accept and adopt only those concepts that make sense to them.

6 Responses to “Tug Of War – Michael Dennis, CBF”

  1. Shy Jones says:

    Another great way to grow your relationship with sales and create a positive atmosphere is to send your sales team notices when their customer’s limits have been increased. This is especially helpful when you are proactively increasing limits based on increases in the business and not necessarily because they’ve submitted a request.

    I found this helpful in creating positive reinforcement with the sales team. It allows them to see finance as a partner in growing the business.

  2. Michael:

    You are correct. The relationship between Credit & Sales needs to be like a marriage. As in a marraige, there are good times and not so good times. The Sales Manager, Salesperson and Credit Professional need to work together to approve the Sale, or Credit Limit, while at the same time reduce the risk as much as possible. The Credit Department can’t/shouldn’t work on the basis of Approve /Decline credit to its customers, but to dictate credit terms acceptible to the Seller and Buyer.

  3. Michael Dennis says:

    It is also a great idea to attend sales meetings. Just watch out for people attaching a sign to your back that says: KICK ME

  4. Margaret Spencer says:

    Michael

    I think the mechanism we implemented that allowed salespeople to “appeal” credit decisions to senior management was a good idea. Without this, it is easy to see how salespeople would believe their concerns and comments are being ignored. By the way Michael, its time for a new photograph for the blog :).

  5. F. Scott Wilson says:

    At the last few companies I’ve worked for, management and sales have all worked hard to invite Credit to the table, and make sure that the Credit Department signs off on anything risky, at our discretion. There are some instances where Credit is overidden, but only with everyone aware of which VP of Sales is now responsible for that account.

    Both Credit *and* Sales, by the way, have their performance graded by the DSO figures for each area within the region. This may be part of why we’re so co-operative.

  6. Deb says:

    Hey Michael!
    Like Margaret, we also have a defined escalation procedure. It’s helpful to invite sales to escalate if they feel strongly about something and there hasn’t been a meeting of the minds. The process has been used exactly once in the last 16 months or so because we really try to communicate.

    Marriage is a great analogy… I use the term “symbiotic relationship”. We both need each other. If sales don’t happen, we don’t need credit and collections, so if they don’t do their job, we don’t turn our lights on….basic but very effective in illustrating that we’re all in this together.

    We also try to offer education to inside/outside sales so they understand WHY we do what we do, specifically in relation to job accounts and lien rights (we are in construction). I’ve found there’s a great interest and you can almost see the “light-bulbs” go off when they get how important our rights are in assisting them in profitable growth.
    It also gives them the tools to respond to their customer’s questions about why we file preliminary notices and how it can benefit their customers as well.

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