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.
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