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Why credit management should be friends with sales

Credit management and sales teams can often find themselves working in isolation of each other. In fact, with one trying to secure sales and the other tasked with balancing credit extension against risk, sometimes it can feel like they’re on opposing sides. Yet companies that don’t utilise the potential of a collaborative sales and credit management approach are missing out on a significant opportunity. Here’s why…

Want to learn more about how to safeguard your business? Download our Dummies guide on Understanding Credit Risk.

Credit risk vs securing a sale

Sales is a competitive, target-driven business so, understandably, every sale counts. Which is why it can be frustrating when the credit management team puts a halt to a deal. But from the contrasting perspective, the purpose of credit management is to extend credit responsibly and in line with the company’s risk policy, which may not always correlate with the sales team’s agenda. 

While sales keep a company operating, so does working capital. And it’s the credit management team’s responsibility to maintain this. Which is why they need to choose clients carefully and avoid unnecessary credit risk .

Credit management and sales – a formidable team

Despite this underlying tension, when working together, sales and credit management can be a powerful, cohesive force – ensuring your company makes lucrative sales, with the right customers. The first step to achieve this is encouraging more communication. That means involving the sales department in the credit process, and explaining the criteria and risk restrictions involved. It also means discussing the credit management team’s responsibility to help achieve good sales. If each department has a thorough understanding of the processes and parameters that drive their counterparts, balancing sales and credit management becomes a far smoother process. After all, they are co-dependent and rely on each other to achieve the same end goals. 

Tips for better collaboration – implement an effective vetting process

Agreeing that the sales department will ensure credit applications are accurately completed at the outset makes things easier for both sides. It’s up to the credit team to explain to sales the implications of failing to vet credit applications thoroughly. This ranges from the inconvenience of having an application returned due to errors or omissions, through to the most serious consequence – bad debt or non-payment. If the credit management team adheres to this process rigorously it will become an established part of the wider sales process.

Another proactive step is to encourage the sales team to pre-vet prospects. This saves time and money as the customers likely to be rejected are weeded out earlier on, before the sales team’s resources are expended excessively on a dud deal. It also helps ingrain the types of profiles and criteria that will likely lead to a successful sale. To facilitate this, the credit management team should ensure their sales colleagues have the tools they need – from using credit reports to drive sales to sharing customer profiles and quality forecasts. 

Involve the credit management team from the offset

Frequently, the credit management team only becomes involved in the sales process once a sale is nearing completion. For large sales and important clients, credit managers should instead be involved from the offset; whether this is in a client-facing capacity or behind the scenes is up to you. 
Another way to create stronger coordination between both teams is to create shared key performance indicators. This creates greater alignment between departments, helps break down silos and establishes a clearer focus on the company’s goals. 

Achieving a compromise

If the credit management and sales teams can’t see eye-to-eye about a sale, it doesn’t necessarily have to slow things to a standstill. There are a number of ways to achieve a compromise that both sides feel comfortable with. For example, if a customer’s payment terms are at odds with the business’s, you can minimise credit risk by advising sales to charge a slightly higher rate to offset the losses of delayed payment. 

Similarly, if a prospect’s credit limit is £10,000 and their order is for £20,000, you can negotiate a 50/50 transaction, where they pay £10,000 upfront and £10,000 on credit. 

And if you have concerns about a client’s payment behaviour you could consider using discounts for cash payment as an enticement. Offering a settlement discount can help you stand out from the competition while providing the purchaser with a significant incentive to settle accounts promptly. 

A smoother path to success

In essence, the stronger the alliance between credit management and sales, the easier it is to target the right clients. Which means less bad debt – and a more profitable company. 

Interested in more information? Download Understanding Credit Risk for Dummies here

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