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Issuing credit vs. the need for sales
Which is better: A few good paying customers? Or a lot of customers; with some who do not pay?
This article will tackle one of the toughest balancing acts a company may have, sacrificing sales for credit.
From the Sales Department the perspective is, "Sales increase revenue, so the more sales the better!" From the Finance Department the perspective is, "A sale isn't a sale until it's paid for."
So, what's a body to do?
The answer is you will need to put responsibility on the Sales Department to recognize their role as being more than just ambassadors of your products and services. They are your front line protection as well.
Sales generally take place when a relationship has been formed. There can be no relationship without some kind of knowledge sharing. Task your sales staff with being information gatherers. They should be asking questions, and a lot of them. For instance: What is your position in the company? How long have you been in business? Are you growing? Who needs to see our bill? Who needs to approve this sale? Who will be our billing contact? Who needs to sign for these services? Here are our payment terms: Do you see a problem with the terms? If so, what can we do to come to terms and ensure a win-win?
In other words, your sales staff should be trained to look for "Good Sales." A good sale is one who offers up a customer who values your product and is willing to pay to have it.
Some companies believe so strongly in capturing "good" sales that they put incentives in place for the Sales Teams to perform in the best way possible concerning gathering information, and for getting the up front deposits and other insurance of payment.
On the flip side, a company may decide to protect the commissions they pay out to their sales personnel by placing a commission claw-back rule.
What is a "commission claw-back rule?" This is where a company tells Sales we are willing to pay you a commission for "good" sales, but if you allow a "bad" sale, you will have to pay the company back for the commission we paid you. Generally, there will be a time element involved in this type of rule. A fairly common time line is 90-days. Generally speaking, in 90 days you will know if a company is going to be a continuing customer and whether they will be reliable payers, so this would be a good time to end the claw-back rule.
Tasking Sales with due diligence is protecting your company up front rather than relying solely on the Credit Department. A united front is the answer! It is much easier to take this approach than to depend on your collections staff to get payment for your services after the fact.
Learn more about the author, Debie Batterson.
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- bad debt
- cash flow