Sales and credit departments traditionally have a poor relationship in most businesses. The credit manager is often looking for very different things compared to his sales counterpart, and when the credit department stops a potential sale it can lead to friction.
Protecting the company credit risk is crucial, but so is finding new customers. Infighting between teams can deeply damage the company as a whole. However, by putting some simple processes in place, you can get rid of the tension to lower the credit risk - and make all sales good sales.
Both sides need to understand where the other is coming from and what their targets are. This collaborative relationship is the first thing you need to build; it really is crucial to successful trading. Once each side understands the role of the other, they will come to respect each other’s importance to the business as a whole.
When you have respect you can start to build a genuine relationship. Get both sides to sit down and understand the natural connection between the two. If there is no credit sold on then there is no need for a credit department, but if those sales aren’t solid or lead to late payments then the company’s solvency is threatened.
It’s very rare that the credit department is consulted at the start of the sales process. But by doing this you can minimise the impact of any problems before they become serious. This is especially important for the biggest clients.
For credit managers this may mean getting involved in issues you haven’t previously considered. Being proactive in this way will boost the relationship and highlights to the sales team that you are interested in the way they work.
When a customer places an order worth £20,000 despite having a credit limit of £10,000, the easiest thing to do is deny them the credit. But by breaking with the traditional and stepping out of your comfort zone, you can make the sale work.
For example, you could ask for 50% of the payment up front and the other £10,000 on credit. Or offer discounts for cash. A settlement discount could give the customer an incentive to pay promptly which will in turn improve cash flow. This is also a great way of keeping the sales team happy and working with them to ensure the business as a whole grows.
As you can see, for a successful relationship between the credit and sales teams, it’s all about gaining an understanding of how the other side works. And with this knowledge you can start to enhance performance overall.
The sales and credit relationship is just one aspect of lowering credit risk. Find out more about what it takes to become a successful credit manager by downloading our helpful “Understanding Credit Risk for Dummies” guide today.