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Sale's Roles in Collections
"You can involve the sales force in collections in various ways, depending on how serious your collection problems are," contends the treasurer of one New York firm. Qualifying prospects. Salespeople should get the same training as credit department personnel. Sales are worthless if you cannot collect payment, so salespeople should be trained to qualify prospects before accepting orders on credit. They should be able to get the information the credit department needs to review a credit order from a prospect. How much information the credit department needs will depend on several factors:
- The line of credit. As a general rule, the higher the line of credit, the more information you need. For instance, if a new customer's first order is for $500 on credit, the salesperson should get two or three credit references and possibly a bank reference, including the name of the bank officer in charge of the account.
If, on the other hand, the order is for $100,000, you might require the salesperson to ask for credit references from other companies that extend a comparable line of credit.
"If you're thinking of accepting a $100,000 order, you don't want a credit reference from the company where the customer buys office supplies," he says. "You want a reference from a company that's allowed the customer $50,000 to $100,000 in credit. You want to compare apples with apples."
- Your type of business. Consider the products and/or services you are selling. Are they off-the-shelf items, or do they require a significant investment of time and resources for specialized work?
"If the order is for $100,000 and you're committing several months' time and resources, the salesperson should ask the same kind of questions a bank asks when a person wants a mortgage for a house. The bank wants to know about that person's assets and liabilities, and it wants a credit report. You have a right to ask for financial statements, audited if possible. At the very least, you should get a Dun & Bradstreet report or its equivalent," he says.
- Large versus small companies. If you're a small company taking a large order from a company like General Motors or Exxon, salespeople won't ask for credit references. But if you're a small company taking a large order from another small company, salespeople should protect your company by getting credit references and financial statements.
Correcting errors/solving problems. Chasing late payment is normally best handled by the accounting department, and accounting personnel should call the customer first. However, once Accounting determines that the problem is not simply late payment but is a problem with the shipment, then the salesperson should get involved.
Collection Management Issues
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Collection Management Issues
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For instance, if accounting personnel call the customer and are told that no one has signed a release for payment, it could be an indication that merchandise was damaged in transit, the wrong quantity was shipped, or there is some other problem.
"If the company didn't deliver what the salesperson promised and this is causing a problem with collections, then the salesperson needs to get involved," he says.
Salespeople can also be valuable when it comes to solving technical problems, since they're often more knowledgeable about the products than credit personnel.
The salesperson might also have less difficulty getting calls through to the right person. For example, if a shipment was incorrect, the customer is upset and may not want to bother with the accounting department. "At that point, the salesperson should call the end user or the purchasing agent to get to the bottom of the problem."
Nudging slow payers. If a customer is a habitual late payer, the salesperson might call the purchasing department or the end user and ask for speedier payment. "The salesperson might say, 'The accounting department is getting on my case because, over the last few months, your payments have been 15 to 20 days late. They're also talking about knocking your credit down.' Then, typically, payments come in pretty much on time. If the customer starts stretching out again, you have to shake the tree again. It's a cycle."
Major Collection Problems
More drastic situations require more drastic responses, such as:
Leveraging sales commissions. If your company typically writes off 2 % to 5 % of its receivables or is experiencing financial difficulties, you might consider making commissions part of the collection phase of your business instead of a part of the order phase. To do this, simply hold salespeople's commissions until the company gets paid.
"If salespeople are accepting orders and then walking away because they have their commissions and they don't want to help the accounting department or the company, then you might want to leverage their commissions somewhat against collections," he says.
The practice is not popular with salespeople, who normally get their commissions either on order or on shipment, but it does have the advantages of increasing cash flow and preventing salespeople from wasting their time chasing unqualified prospects.
"If they know they won't get paid until the company gets paid, they'll look for qualified customers," he says. "In my experience, when companies start leveraging commissions, they have fewer problems with slow-paying accounts and accounts receivable that go completely bust.
"Leveraging is only warranted when you're dealing with long-term contracts with stretched-out payments or when history indicates you need to do so. If you don't have any real collection problems and your salespeople are doing their best to develop qualified prospects, there's no sense in upsetting the apple cart."
Involving the sales force in the credit and collection effort is one way to decrease receivables and increase cash flow. Their connections and relationships with customers make them a valuable asset in both major and minor collection problems.
Editor's Note: This article originally appeared in the Credit & Collection Manager's Letter.
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