As a career sales professional, I used to cringe at the thought of having to call a customer to discuss their late payments. However, I’ve also come to accept that it’s part of the territory and an essential part of protecting the company’s gross profit. However, what role should sales play in managing a customer’s credit? Should they be proactive and work alongside accounting, or should they merely be used as a resource or better put, as a last resort? Well, I am going to put forward some arguments as to why sales should only be used once all other avenues have been pursued.
Granted, it’s inevitable that sales will have to get involved. Regardless, it’s about how and when they get involved that ultimately makes the difference. In this case, sales should only be called in once accounting has been unable to move forward with the customer, or when accounting is not getting the appropriate responses. In this case, accounting must not rely upon sales as “the-end-all-be- all” solution, which often happens in companies.
In addition, they must never play the “commission” card! What does this mean exactly? This is when accounting makes those statements that the salesperson’s commission is at risk, or future orders won’t be released, unless the customer pays their bills. It’s accounting’s way of getting sales involved – but it’s wrong to use it as leverage. It does nothing more than put the sales person on the defensive.
Cost of Capital, Cost of Borrowing Money and Your Bottom Line
On the sales side, salespeople must understand the role of the daily cost of money and how it erodes the company’s gross profit. Financing receivables is extremely expensive and is akin to financing the customer’s business. Understanding your cost of money is an essential aspect of properly managing the customer’s expectations, and in setting the stage to protecting profit. What is the daily cost of money you ask? Well, most businesses use business loans and credit lines to finance inventory. Once a product is sold, the company will continue to pay a daily interest rate for every day the invoice goes unpaid.
This is ultimately why many argue that a sale is never a sale until the customer pays the invoice in full. Unfortunately, a number of companies then take this mindset and use the salesperson’s commissions as leverage to get them more involved in the customer’s payment habits. Ultimately, they ask themselves the following question:
“If a sale is only a sale when the customer pays their invoice, does that then mean the salesperson’s commission should only be paid once the customer pays? Will this help get sales more involved in managing the customer’s credit?”
After reading the above questions, what’s the first thought that comes to mind? Well, you’ll likely think that it’s a solid argument. If a sale is only a sale when the customer pays, then shouldn’t salespeople only get commission once that payment occurs? No. The fact is, salespeople are successful when they are able to identify and close on opportunities and when they are viewed as solution providers in the eyes of customers. There is a mindset to sales that a number of people don’t understand. Becoming more involved in credit infringes upon that salesperson’s mindset and on the customer’s view of what the salesperson should be doing.
To answer that aforementioned question of “What Role Should Sales Play in Managing a Customer’s Credit?” is rather simple. They should only fill a support role, and nothing more. There are enough barriers that salespeople must overcome, and asking them to play a proactive role in managing a customer’s credit, does nothing more than affect their customer relationships.
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