Credit-to-Cash Briefing
One customer, diverging interests? Managing credit
successfully in a sales-driven environment.

It’s pretty standard for sales and credit management to come atthings from opposite directions when it comes to customers –but what’s less common is the two acknowledging that close ­co-operation can significantly enhance both a business’s
bottom line and its longevity.

A common scenario is this: the sales
team gets the deal done at all costs,
then a little way down the line, thecredit management team holds theirsales colleagues responsible for failingto adequately scrutinise a customer’s
creditworthiness or the terms of payment agreed in the deal. In some cases
sales actions may even impede default
protection measures.
The flipside? Sales staff lament thefact that their colleagues in accounting are interfering busybodies whoregularly compromise their hard-won
client relationships when they issue

yet another reminder notice or stop adelivery due to unpaid invoices.
On the face of it, tensions between
sales and receivables management
seem to be inevitable. The former
prioritise increasing the company’sturnover and are measured by thecontracts they finalise - not if andwhen customers finally pay. Then thereceivables manager’s focus howeveris on safeguarding liquidity by minimising outstanding receivables anddefault risks. Essentially ensuring thecompany’s very existence.

However, if both sides are able toco-operate closely, outstanding receivables can be settled earlier, improving
the liquidity of their company andsubsequently its chances of long-term
survival for the benefit of all.

Debtor´s delightOften, these scenarios happen due
to a basic lack of communication.
The channels may be in place, but
inadequate communication gives
rise to a host of misunderstandings.
Sales people are often unaware of thecomplexities of debt collection: at theother end of the spectrum, credit managers do not understand the (mainlyconflicting) pressures on their sales
colleagues.
As a rule, the sales team will negotiate
payment terms with buyers because
trade credit can be a useful bargaining
chip. This can however lead to a mazeof terms and conditions, sometimes
even resulting in a single customer
receiving a different terms with eachnew purchase. When payments aredue, the buyer has a bevy of excuses
available to prolong payment periods.
Popular excuses can include claims
that special due dates and conditions
had been negotiated or complaints
about the product or service to stall
for time. Meanwhile, the invoice still
isn’t paid and the credit management
team loses precious time checking
with the sales team in order to verify
the customer’s claims. No one wins.

It’s also worth acknowledging thatsales teams are more likely to be
influenced by external market conditions. “The market demands theseconditions. Our competitors are doing
it too.” These are common argumentsthat frequently herald conflict. Thiscan become a problem if in a payment
dispute the sales team sides with thecustomer in order to avoid damaging
business relations. Adept late-payers
will often wait for several reminder
notices and employ a set of delaying
tactics, e.g. complaints or demands forprice reductions to prolong their tradecredit free of charge.

Pooling resources
Pooling resources is a good thing.
Better still, it makes sense for sales
and credit management to work
together in a structured way to keeplate payments and payment defaults
to a minimum. It’s a win-win situation.
Here’s why.
From the perspective of the receivables management team:
77 Salespeople and account managers
see customers on a fairly regularbasis. They know information thatcan be of essential importance inassessing the creditworthiness ofbuyers (see tip below).
77 Salespeople can often influence
customers’ payment behaviour
through their personal contacts andtheir understanding of their corporate/payment culture.
77 Poorly handled reminders andcollections procedures will harmcustomer relations. An awkward
phone call from the credit department could damage a relationshipnurtured over many years. Instinct
and emotional intelligence of thesales team can be valuable andshould be factored in here.
77 Payment processes frequently stall
due to complaints or misunderstandings with regard to the termsof payment. Customer relations
maintained by the sales staff areoften vital in shedding light onthese cases.

But sales teams canbenefit, too.
77 Receivables managers can help
successfully control sales activities.
They’ll be able to provide sales
teams with up-to-date information
on a client’s creditworthiness, andtheir ability to settle their balance.
This is a gift from heaven for any
sales team that wants to build theirsales with lucrative customers whopay; and not with bad buyers thathave poor payment morale.
77 Although it may seem obvious, close cooperation with the credit department improves the sales force’sexpertise in the field of receivables
management, enhancing their competence vis-à-vis the customer.
77 Close cooperation between the two
disciplines is pivotal to balancing
a company’s payment default risk
and sales policy. Put simply, boosting sales without considering thelikelihood of payment default leads
to payment delays, or worse, uncollectable invoices, which ultimately
can result in cash flow problems.

Improving cooperation between credit
management and sales force
Defining clear guidelines
A balanced risk and sales policy offersa fantastic opportunity to enhanceboth profit and liquidity. Based on corporate objectives clear targets should
be set, e.g. by linking higher sales tomore stringent credit assessment procedures. Senior management should
therefore define at the outset theimportance of credit management andsales within the business strategy.
Transparent guidelines for cooperation should be implemented so thatboth parties are aware of its importance and the processes involved. The
heads of sales and credit management
should clearly commit to cooperating.

Defining common fields
of interest
Mutually binding terms and conditions
should be clearly articulated to bothsales and credit management teamsso that they know what they need tofactor in:
77 check creditworthiness of potential,
old and new customers
77 terms and conditions for delivery
and payment(sales price, payment terms, discounts)
77 credit lines
77 procedures for handling overdue
payments
77 procedures for payment defaults
due to non-performance or complaints
77 reminder letters and collections
actions

Joint workshops
This provides both sides with anexcellent opportunity to discuss
their respective perspectives, openly
address any issues and look for mutual solutions in areas such as:
77 Payment behaviour of specificcustomers
77 Issues regarding the level of credit
limits77 Diverging credit assessments

Regular exchange ofinformation on customers
A framework for the regular exchange
of information should be established.
For example, credit management
could provide the sales team with regular status reports on due dates andpayment delays. Planned reminder letters or calls to chase payment should
be shared and discussed. This is also
the opportunity for salespeople toshare any special conditions agreed inany sale, or any likely complaints.

Performance-related
remuneration

So, what’s next?
To sum up, smart businesses have figured out that fostering aclose connection between credit management and sales is vitalfor a healthy corporate balance sheet. It engenders trust, helps
everyone on both sides understand what each other’s pressures
are and drives a healthy sales environment.
How do we know this? At Atradius our job is to help businesses
to safely sell their products and services on credit terms. We
help thousands of businesses, the world over, improve theirreceivables management, every year.

It may sound tough, but if sales commissions are related solely to turnover,
the temptation will always be for sales
teams to focus on getting the saleat any cost – rather than getting thebalance paid. A simple shift, relating
sales to a settled balance rather thana signed contract would effect a significant shift in a company’s credit
culture.

atradius_credit-to-cash_20180911_01

Tip
How to employ sales team’s
experience in assessing a customer’s
creditworthiness
Salespeople often have unparalleled insight into importantcustomer information that credit teams would otherwise finddifficult to obtain:
Appearance

Customer behaviour:: Are offices, production facilities andwarehouses in good condition?

:: Do prices play only a minor role inbusiness negotiations?

:: Are warehouses full or empty?

:: Are overly long payment terms
demanded?

:: Does the appearance seem tobe sugar-coated, perhaps just toimpress?

:: Does the customer try to promotesales with discount prices?

Personal impression

Market development:: Does the management compriseseasoned specialists commanding
thorough commercial skills?

:: How do competitors assess thecustomer’s business?

:: Have business deals and accords
always been kept?
:: How is the working atmosphere?
:: Is employee turnover increasing?

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regarding the information provided. While we have made every attempt to ensure thatthe information contained in this report has been obtained from reliable sources, Atradius
is not responsible for any errors or omissions, or for the results obtained from the useof this information. All information in this report is provided ’as is’, with no guarantee ofcompleteness, accuracy, timeliness or of the results obtained from its use, and without
warranty of any kind, express or implied. In no event will Atradius, its related partnerships
or corporations, or the partners, agents or employees thereof, be liable to you or anyone
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