What are credit sales
Did you, by chance, notice the title of this article? Not Sales v Credit but Sales and Credit and Sales.
Some of us have yet to figure this out but you can have one of these functions in any organization without the other, do you know which one? We'll give you a hint it's written twice. Now the reason we're writing about this is because we were at a lunch not too long ago where 97% of the participants were credit professionals. During the pre-lunch festivities we happened to overhear one of the attendees say to her colleague, "I just wish I could get our management to understand what is going on so we can bring the sales force under control. They are out there selling to any one who will place an order. If they are allowed to continue they are going to destroy our company ".
Hmm, Sales people selling product to customers who want to purchase them, what a novel idea.
I have written and spoken on many occasions that the primary function of credit is to support sales. The very reason the company we work for is in existence is to sell whatever product or service we provide to another business and/or consumer who wants it.
THE PRIMARY FUNCTION OF CREDIT IS TO SUPPORT SALES!
Can that statement be made any clearer? How about, without sales we don't have revenue and without revenue there is no cash. Let's write it out as a formula and be blunt;
Zero sales divided by zero revenue minus zero cash equals no job.
Businesses are created to sell things. Businesses usually begin small with one or two employees doing everything. As sales increase businesses hire more employees and eventually departments are formed to handle specific functions such as sales, customer service, distribution, credit & collections, etc. Regardless of job titles or positions every employee's primary job is to sell the company's products and that never changes but too often that primary function becomes lost in the details.
Human nature dictates that we have different attitudes and feelings about our surroundings, acquaintances, and activities. These attitudes and feelings generally fall into two categories, positive and negative. When someone wants to do something for us or we participate in an activity we enjoy we tend to have a positive attitude or feeling about the person and/or the activity. However, if we are being asked to do something we don't like or feel uncomfortable about what or how we are doing we tend to have a negative attitude or feeling.
And so it is with sales and credit. Ask anyone in the organization outside these two departments their perception of credit and sales and invariably the majority of respondents have a negative opinion towards credit and collections.
Not surprisingly, the majority of credit personnel not only have a negative opinion about sales but also themselves.
Allow me to illustrate that last statement. I spent over twelve years presenting public seminars and workshops for companies throughout North America. Ninety percent of the seminars and workshops were to credit personnel on various credit & collection topics. During these sessions I would ask the participants to write down what their function was in their organization. Their responses were always the same: collect money from past due customers; risk analysis; evaluate credit information; resolve and/or collect deductions, freight charges, and disputes, review credit holds. They did not grasp that all these activities are looked upon as negative activities. On occasion but very seldom a response would be to sell the customer or provide customer satisfaction or assist the company to grow. Although positive responses, the negatives far outweighed the positives.
The most common voiced complaint about sales people is they are only interested in their commission. Well, I just want to say right here, that's absolutely correct. Selling is a tough job. It involves a lot of cold calling. Cold calling, for those unfamiliar with the term, is calling on a customer you have never done business with and try to interest them in buying your product. Cold calling is a lot tougher than reviewing credit reports and trade references and/or analyzing financial statements. However, it is similar to collecting money. Selling is thirty percent rejection and seventy percent negotiation. What motivates a sales person to accept rejection and spend hours perhaps days negotiating a sale with one customer are commissions, spiffs', bonuses, trips and whatever else the company offers sales to get out on the street and cold call. Here's something to consider, the majority of sales-people I've known are motivated, out-going, energetic, disciplined, speak highly of themselves and have a positive attitude. Ask a sales person if a glass is half full or half empty and the answer will always be the glass can be filled with more liquid. Most credit people I know have some but not all of the same attributes as sales people and the one big difference is they tend to be less positive especially in promoting themselves and what they do. When was the last time you attended a gathering of credit professionals where the conversation was about the sales they had approved?
The credit professional has been taught or learned from mentors and superiors that there is a division between credit and sales, a check and balance if you will, and because of this the credit/sales relationship has usually been cordial but strained. Only in those organizations where credit has been realigned into sales or where management will not tolerate diversity do the two departments' cohabitate effectively.
The two words that infuriate a sales person more than any other are "credit hold". Especially after they have spent hours negotiating the order. A lesson learned from a previous mentor and former boss is that credit never "holds" any customer orders. It is not credit's function to suppress sales but rather to find the way to process the orders entered by sales for shipment as quickly as possible. To this end, this true credit professional had a unique way of establishing new accounts and at the same time promoting the credit department as a function to support sales. What he would do is call the new customer upon receipt of the credit documents received from the sales department and welcome them on behalf of the company. He would then tell the new customer that as long as they paid the invoices by the due date that all orders would be processed for delivery by the date promised to them by their sales representative.
However, if they placed an order with sales that had not been received when promised they should not contact the credit department and/or the salesman but rather they should contact their accounts payable department to find out which one of our invoices had not been paid. He went on to tell them that the only person who could prevent an order from being processed timely by us for delivery was their accounts payable department.
Rather than allow the customer to pit the sales department against the credit department he placed the responsibility of customers receiving their orders timely, where it belonged, on the customer.
Because of this positive approach to credit approval sales and credit enjoyed a very good relationship and the only time an order did not ship was because the customer was past due, had gone out of business, ceased doing business with us, or filed bankruptcy. However, sales never got upset with the credit department because they knew the only reason for the order not being released was due to customer negligence and the customer had been told the reason from the beginning. In fact, we often had the sales reps calling us to inquire about their customers A/R status before calling on the customer for new orders. Our sales reps when taking new orders would remind or ask the customer if their account was up-to-date.
This also provided credit department personnel with several benefits, one being the ability to get out of the office and meet our customers. Not unlike other organizations, our credit department had a very limited travel budget. The majority of it was spent to attend industry group meetings and travel to credit seminars. Sales, however, like in many organizations, had a very large travel budget and because our department had a positive sales oriented attitude the sales reps often requested that we accompany them on customer visits and the sales department paid our expenses.
Too often many credit professionals fail to realize that selling is a team effort. It's not always the salesperson alone who is involved in selling to the customer. If the salesperson is being rejected he/she will often ask for assistance from those departments who sales believe can assist them in winning over the customer. It may include
people from management, operations, customer service, distribution, or manufacturing. Whoever they feel can assist them in projecting a favorable image to the customer that will ultimately convince the customer they want to do business with our organization. A big mistake that salespeople often make is not including credit personnel in this process. However, who can fault the salesperson if they have a negative image of us and what we do. We have to work on changing that image within our organization and convince sales that we are a positive contributor to the success of our company.
How do we go about bringing about this change? First, it begins with what we do and how we look at our job. We have to not only begin thinking positive about what we do but we have to begin acting positive. We need to examine our daily activities and how we address both the internal and external customer. Look at what we say and do and ask ourselves is this how we would want to be treated if our roles were reversed. Second, we need to ask for assistance from our internal customers. I mentioned earlier that every person employed by the organizations primary function is to sell the company's products.
Well, the second function of every person in the organization is to collect payment from our customers for those products we sold them earlier on terms. There are many of us who will engage the services of outsiders (collection agencies) to assist us rather than ask for help from our colleagues. If we are having difficulty with a particular customer, we need to ask ourselves, who in our organization can we ask for help in dealing with this particular customer? We need to identify those individuals in our organization who have a rapport with the customer and ask for their assistance.
Another example: Many years ago I accepted a position as the Director of Credit for a large subsidiary of a foreign corporation doing business in the U. S. Their method of collecting was different than many of their competitors. I soon discovered we had several prominent large corporations who owed us thousands of dollars that were past due. My staff was frustrated and demoralized because their contacts within the customers' accounts payable departments either had no record of invoices or the invoices had not been approved for payment. Our sales department was uncooperative and told staff that "We're not paid to collect, our job is to sell" meanwhile our department, by company policy, was not permitted to elevate our collection efforts beyond the customers' accounts payable department. However, there was pressure from our management to collect the past due, a task where my predecessor was unsuccessful considering company policy and one of the reasons why I was the new department head. Of course none of this was revealed to me during the interview process and I was too excited about obtaining the position to ask the relevant questions.
Now I found myself in the same position as my predecessor and trying to find a way to accomplish what I told my new employer I was capable of doing. During my interview process I met with several department heads that I would be interfacing with in my new position. One of these individuals was the director of marketing and we connected right away because we discovered we both shared a liking for western movies. The movies that starred the likes of Johnny Mack Brown, William Boyd, Gabby Hayes and Yakima Canutt. The old western movies we watched as kids at Saturday matinees.
At lunch one day I mentioned my frustrations in response to his inquiry as to how things were going and after listening for a few minutes he offered a suggestion. Why don't you have a contest to see who can collect the most money? My immediate response was negative bringing up the fact that our efforts and contacts were limited to accounts payable and that was getting us nowhere. I also told him I had a fixed budget and the most I could reward staff with was kind words and a handshake. His reply was to get sales involved and once again I provided the negative response that we had tried that already and they were unwilling to assist us.
After a few minutes he said he was going to put something together for me to review and present to management. A few days later he came by my office. "Hi sheriff", he said as he walked into my office with poster board under one arm and sheets of paper in hand. "Are you ready to go round up some money"? To my surprise he had created a plan to collect our past due accounts utilizing a western theme where I was the "sheriff" and sales and credit personnel were my "deputies". He had teams (posses) composed of credit and sales staff that would work together to capture "outlaws" (delinquent customers). He had created wanted posters with the names of delinquent customers and the amount they owed. The plan called for the sales director and me to assign a reward for each outlaw captured (money collected) to be split among the posse members. Sales team members would be utilized to identify and contact the person in the organization who get our invoices approved for payment and credit team members would provide whatever documents were required to get the invoices approved for payment and sent to accounts payable for processing.
Together, we presented the plan to sales and management. Although skeptical, management approved the plan and sales agreed to participate, after all there was now a financial reward involved and not only for sales but credit staff as well, something that had never been done before in the organization. Teams were put together and assigned "outlaws" to capture. Within six months we had recovered a substantial amount of money that was past due and identified billings that either required credit or further negotiation between sales and the customer. An added benefit was the teams of credit and sales staff enjoyed working together and began developing good working relationships. I can honestly say that we would never have been successful without the assistance of the marketing director who I never would have thought of going to for assistance in a collection matter.
I've said this before and I will repeat myself. We, as credit professionals, need to open up and share our information with those within the organization who have the need to know and who can help us. Credit information is not the property of the credit department. The information is obtained by and belongs to the company. The credit department is responsible for maintaining the confidentiality of the information and that means they have to be discreet when sharing that information with others in their organization. I have no problem and there is no breech of confidentiality in sharing credit information with sales or any other team member especially when formulating a plan to sell to; and/or increase a customer's credit line; and/or find ways to collect money that is owed the organization. A credit professional who withholds information under the guise of confidentiality is doing a disservice to the organization and further contributes to the division between credit and sales and other team members that ultimately produces negative feelings.
I used to ask my seminar participants if within their organization they ever felt like bastards at the family reunion. The line was always good for a laugh but when I looked into their eyes I could also see their pain. The truth is the only reason we harbor those feelings is because we have retreated behind our cloaks of secrecy. All information obtained for business purposes is the property of the organization and it is the organization who decides, through its policy manual, who within the organization has access to that information.
The bottom line is the organization requires a sales team because if you're not selling your product you don't have a business. Credit? Maybe, maybe not, there are options. You can sell for cash, you can factor your A/R; you can floor plan your A/R; you can discount your A/R; you can sell your A/R; you can outsource, etc.
The successful credit department is one that is comprised of positive and creative thinking credit professionals who are working with both sales and their customers to build lasting partnerships where both organizations grow and prosper together.
We wish you well.
The information provided above is for educational purposes only and not provided as legal advice. Legal advice should be obtained from a licensed attorney in good standing with the Bar Association and preferably Board Certified in either Creditor Rights or Bankruptcy.
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