Credit and Sales: Working Together for Profit (Best Practices and Legal Considerations)

Aug 30, 2016

By: David Feigenbaum, CCE & Scott Blakeley, Esq.

The history of the relationship between sales and credit departments is a long, often painful one with story upon story of unhappy encounters between two parties who appear at first glance to have diametrically opposed objectives.

But are their objectives really opposed? If the relationship is truly understood by all parties, they will come to the realization that they are actually pursuing the same goal – PROFITS – from different directions. Each discipline has its own priorities within the goal of profit. Too often, sales want the order and do not care about the potential risks. For its part, credit, in its desire to assure payment, becomes so conservative as to choke sales growth. Both sides need to be realistic and recognize the need to find a middle ground.

As the company’s credit executive, where do you sit vis-à-vis sales? Do you have the support of senior management and do you and your function have the respect of sales management? If the answer to the last two questions is “no,” these issues need to be addressed. Unfortunately, many companies are deemphasizing the importance of the credit function. To reverse that trend, the credit executive must sell the benefits of their roles to their management.

Credit is a product and should be sold as such. It is a value-added component of the business. Credit has the ability to understand the financial marketplace, provide financial insight, and enhance the customer service process. A truly attuned credit executive presents him or herself to sales as an adjunct to the sales department, someone whose goal is to help secure the order. If you come across as the “Sales Prevention Bureau,” you’re going to be shut out. Sales will work around you and probably get what they want, at least until the bad debts pile up. Relationship-building is of paramount importance. A good relationship with sales managers and sales reps helps to bring a better understanding to both parties.

Attendance at sales meetings is an excellent way to raise credit’s profile. Ask to address the group and share your thoughts and learn about theirs. Learn as much as you can about the sales organization’s goals and objectives. One of the frequent complaints from both parties is that the other doesn’t understand what they have to deal with every day. An open line of communication goes a long way toward curing that.

How well do you know your sales department? Is there a specific customer base they’re trying to grow with? Is there a specific product or group of products they are promoting? If they are, anticipate and be proactive. There are ways to be a part of the acquisition of orders and to let the sales force know you’re trying to help them.

• Ask for a list of targeted customers to pre-screen for growth orders. If sales team sees that credit is trying to help them achieve their objectives, a trust, and cooperative relationship develops. Nothing aggravates a salesperson more than working on a large, special order for a long time only to have credit raise objections after the order is in-house. By requesting a list of targets in advance, many of these situations can be avoided. The more sales department realizes that having credit participate in the conversation sooner rather than later, the easier it is for everyone. On the other hand, if there is going to be an issue with an order, it is best for the salesperson to know before they commit to the customer. Help them avoid being embarrassed.

• Unusually large orders for special circumstances like promotions are not threats to credit; they are growth opportunities for the company. Don’t be afraid to stretch and make intelligent, well-researched decisions to extend credit lines and grow sales. And if the customer doesn’t qualify for that extra-large order, try to find a middle ground. Is there a way to ship half the order now and the balance after the first half is paid? Is there a way to arrange special payment terms for installment payments that help smooth cash flow? Be creative.
• How do sales’ goals conflict with credit’s? As stated previously, conflicting goals are a real and troublesome issue. If sales have been charged with increasing sales and credit is supposed to reduce DSO and past dues, they may well be thrust into conflict immediately. Engage senior management in a discussion of aligning goals so that internal conflicts are minimized.
• Do salespeople have a stake in credit issues? Will they lose commissions if a bad debt is taken? Commission claw-back is an often contentious but effective means of gaining alignment.
• Get out in front of customers and salespeople. Travel with salespeople to meet customers. Start with customers who pay well so that sales sees that credit can meet a customer on a friendly basis. Thank the customer for their excellent payments and for being a loyal customer (when was the last time a customer was thanked by credit?). If their sales have increased, make note of that and how their payments have also stayed on course. Let them know, if appropriate, that additional credit is available if they continue to increase their purchases. Learn the customer’s marketplace and issues. Let them educate you and show you what they have to overcome to succeed. In the process, you’ll learn more about the salesperson’s daily challenges.

Credit is customer service, the more you understand your customer, they better you can serve them.

Using security agreements to extend additional credit is an excellent means of helping sales grow. Many salespeople initially react negatively to the idea of asking for a security interest in inventory or equipment. However, if presented properly, an educated sales force will actually help credit sell the idea to customers who want increased credit lines. Make the UCC form a part of your credit application and make sure sales understands it is not a personal guarantee. Let them know if you can get the customer to sign the UCC, you may be able to extend more credit.

Industry credit groups are an excellent resource. NACM manages numerous Industry credit groups which are invaluable sources of information about customers and performing the credit function. Contact your local NACM to find out if they have a group that can assist you. Industry groups will provide credit reports with information from a national database. Industry group meetings are an opportunity to meet your peers and learn from them their best practices. Out of town meetings are opportunities to visit customers and meet salespeople. The more you know about your customers and your competitors, the more knowledgeable you are about your industry and the more your sales force will respect your business knowledge.

How you say no is important, maybe more important than the message itself.

People will forget what you said, people will forget what you did, people will never forget how you made them feel!

If you make a salesperson feel like he/she is a nuisance you have to tolerate, you build antagonism immediately. Say no nicely. Offer ways to accommodate the request. If there is no way to grant approval, help them understand why. Explain your logic and decision-making process. Give them enough information to understand the decision and ask them what they would do if they were in your shoes. Once they own the decision, they develop a trust in credit and an understanding of the issues that go into credit decisions.

The goal is to help everyone either improve upon an already existing positive relationship or create a positive atmosphere if one does not exist. Our experience is that sales and credit can work together in harmony if each understands the goals and challenges of the other. Communication is the key. Credit has something to sell; it is a value-added factor in any business.

• Legal considerations:  Complying with the antitrust laws
  • Sharing industry group information
  • New account set up and gathering customer information
  • Customer credit terms pushback
  • Working with the delinquent account
  • The Sarbanes-Oxley Act and the sales team’s pledge of no ancillary agreements with customers.

David Feigenbaum, CCE has been Director-Corporate Credit at Kichler Lighting, Cleveland, Ohio since 1999. His prior experience includes tenures at Dun & Bradstreet, Westinghouse, and General Electric and he has been a member of the credit profession since 1974. Since joining NACM in 1978, Mr. Feigenbaum has chaired the NACM Philadelphia Electrical Distributors Group, NACM National Electrical Manufacturers Group, and the National Fan & Lighting Group. He is a former member of the Board of NACM Greater Cleveland and is currently in his third term on the Board of the Electrical Manufacturer’s Group.

His primary focus and accomplishments as a credit professional have been in the areas of credit department turnaround and improving the relationship between Sales and Credit. His expertise and management philosophies have been featured in Credit Today Magazine and NACM Connect Interconnection.

Contact information: dfeigenbaum@kichler.com

Scott Blakeley, Esq. is a principal at Blakeley LLP, where he practices bankruptcy and creditors’ rights. His email:  seb@blakeleyllp.com.

Scott E. Blakeley advises companies regarding creditors’ rights, commercial, e-commerce and bankruptcy law. He was selected as one of the 50 most influential people in commercial credit by Credit Today. He is contributing editor of NACM’s Credit Manual of Commercial Law. Scott has published dozens of articles and manuals in the area of creditors’ rights, commercial law and bankruptcy in such publications as Business Credit, Managing Credit, Receivables & Collections, Norton’s Bankruptcy Review and the Practicing Law Institute, and speaks frequently to credit industry groups regarding these topics throughout the country. He received the Credit Ambassador Award in 2013 from NACM Northwest (formally Oregon).