A Compromising Position – Michael Dennis, CBF

Backed Into A Corner

About a year ago, I attended a half-day training program geared primarily toward our sales department in which the speaker emphasized communicating, connecting, and compromising as ways to rapidly increase sales and profits.  At one point, we were asked to break into smaller working groups.  My group consisted of me and 6 salespeople and not surprisingly, they wanted to talk about compromise!   On a flip chart, they listed the compromises I could make that would increase sales.  The list included:

  • Automatically release more orders
  • Release all orders under a certain dollar amount
  • Offering longer payment terms
  • Make it easier for customers to get higher credit limits
  • Accept extended payment proposals made by delinquent debtors
  • Do not require updated financial statements unless there is clear evidence the customer is in financial difficulty
  • Approving applicants more quickly by reducing the number of checks we do

I was feeling backed into a corner…until I remembered that while I can offer input, I did not have the authority or ability to establish the goals and objectives for the credit department.  So my response to their suggestions went something like this:

“These are all great ideas, and they each involve compromise.  In addition to increasing sales, the compromises would also: (a) increase credit risk resulting in (b) higher bad debt losses and (c) higher payment delinquencies. Therefore, all you have to do to make these recommendations a reality is to convince my managers that the benefits outweigh these risks.” I added that in my opinion they do not.

Most credit managers do not have the authority to accept higher risk, to make exceptions, and to disregard standard practices.  These are decisions that need to be made by senior management.

Michael Dennis, MBA, CBF, LCM

What about compromises?  Credit departments compromise every day — every time a decision is made to ship to a past due customer or to extend credit to a marginal risk.

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

2 Replies to “A Compromising Position – Michael Dennis, CBF”

  1. That was a very well thought out and tactical response Michael. I think the struggle between sales and credit is as old as business itself, and it appears to still be alive and well. I often get frustrated when dealing with sales, and I try to explain that what is good for their commission check might not always be what is good for the company. However, I think I’ll start using your approach instead because mine doesn’t really go over very well 😉

    For the past 20-25 years senior management at most companies have come from a sales background, prior to that senior management came mostly from an accounting/business background. I believe that this change has resulted in a management perspective that often places sales over the cost of obtaining those sales. While I understand that a company cannot exist without sales, I also realize that a company will not exist without profitable sales and a manageable cash flow. I think compromise is impossible until all parties acknowledge and understand the risk associated with each sale/customer. Once all parties agreed to the risk associated with a sale/customer, only then can a compromise on how to proceed occur.

    Thanks again for the blog post.

  2. The credit and sales relationship is not about compromise; it is about collaboration. When we collaborate then all of our needs and even some of our wants and desires will be achieved in a profitable and sustainable manner. On the way to collaboration there is a station called middle of the road, this is the station of compromise. It is only a temporary resting place to find the path to the ultimate destination: COLLABORATION.

    We need to share with sales our mutual goals and find mutually beneficial winning solutions.

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