In a perfect world, credit and sales department professionals have an inherent respect for each other and understand the difficulties and importance of their counterparts’ jobs on the other side. Unfortunately, as so many credit professionals—and, let’s be fair, salespeople too—have found over the years, this is often not the case.
Ensuring that both sides are well informed about the goings on of the company and its customers can often lead to a drastic reduction in risk. One side needs the other, especially when looking specifically at risk. Michael Andreasen, process manager with TNT Express in the Netherlands, notes the relationship between balancing revenue generation and protecting from bad debts is like a grownup metaphor for riding on a seesaw.
“In some companies, the credit manager reports to sales and in others to finance. Now picture a seesaw: on one end you have the sales department weighed down heavily with demands for more revenue, more profit, more customers, and more volume; and on the other end is the credit manager trying to manage the risk of poor-paying customers and having to try and strike a balance,” Andreasen says.
“This is not an easy task, especially in companies where the credit department is measured on the level of bad debts, and the sales department is measured on revenue and profit,” Andreasen continues. “Working in silos is typically what tends to happen. But, if you’re able to break down the barriers between credit and sales, you can start evening out the seesaw effect.”
Dennis Karpinski, CPA, controller at Eastern Industrial Supplies, Inc., believes in cross-training and cross-reporting between credit and sales. Since the two really can’t exist and function well without the other, Karpinski argues that if, ultimately, the goals for the company are the same on both sides, “when they work together, they are far more successful.”
However, some fear training sales and credit people in each other’s disciplines not only takes valuable time, but may empower certain individuals with a feeling of importance, which can get out of hand. Norman Taylor, CCE, credit consultant for NIIT Media Technologies LLC, says salespeople are not properly trained to be credit people, just as credit personnel are not trained to be in sales. “Why should you have to spend so much time learning your own disciplines and have them cross-trained to that magnitude? This is too big and too important.”
The Case for Cross-Training and Cross-Reporting
For the majority of credit professionals and other experts, there’s a strong case to be made for improving relations between credit and sales from a risk perspective. Says Andreasen, it sounds “dead simple,” but many professionals and managers in both disciplines simply don’t take the time and the effort to communicate.
“What we, in credit, need to do is to take a leaf of the salesman’s book and be better at ‘selling’ what we do. It’s not just about communicating what we do, but how we do it, and why we do it,” he explained. “You need to establish a natural flow of communication between sales and credit.” Another step would be to look at the metrics the other side is judged on, and apply some of those performance measurements to your own department to illustrate the overall picture.
In a perfect world, credit and sales department professionals have an inherent respect for each other and understand the difficulties and importance of their counterparts’ jobs on the other side. Unfortunately, as so many credit professionals—and, let’s be fair, salespeople too—have found over the years, this is often not the case.
Ensuring that both sides are well informed about the goings on of the company and its customers can often lead to a drastic reduction in risk. One side needs the other, especially when looking specifically at risk. Michael Andreasen, process manager with TNT Express in the Netherlands, notes the relationship between balancing revenue generation and protecting from bad debts is like a grownup metaphor for riding on a seesaw.
“In some companies, the credit manager reports to sales and in others to finance. Now picture a seesaw: on one end you have the sales department weighed down heavily with demands for more revenue, more profit, more customers, and more volume; and on the other end is the credit manager trying to manage the risk of poor-paying customers and having to try and strike a balance,” Andreasen says.
“This is not an easy task, especially in companies where the credit department is measured on the level of bad debts, and the sales department is measured on revenue and profit,” Andreasen continues. “Working in silos is typically what tends to happen. But, if you’re able to break down the barriers between credit and sales, you can start evening out the seesaw effect.”
Dennis Karpinski, CPA, controller at Eastern Industrial Supplies, Inc., believes in cross-training and cross-reporting between credit and sales. Since the two really can’t exist and function well without the other, Karpinski argues that if, ultimately, the goals for the company are the same on both sides, “when they work together, they are far more successful.”
However, some fear training sales and credit people in each other’s disciplines not only takes valuable time, but may empower certain individuals with a feeling of importance, which can get out of hand. Norman Taylor, CCE, credit consultant for NIIT Media Technologies LLC, says salespeople are not properly trained to be credit people, just as credit personnel are not trained to be in sales. “Why should you have to spend so much time learning your own disciplines and have them cross-trained to that magnitude? This is too big and too important.”
The Case for Cross-Training and Cross-Reporting
For the majority of credit professionals and other experts, there’s a strong case to be made for improving relations between credit and sales from a risk perspective. Says Andreasen, it sounds “dead simple,” but many professionals and managers in both disciplines simply don’t take the time and the effort to communicate.
“What we, in credit, need to do is to take a leaf of the salesman’s book and be better at ‘selling’ what we do. It’s not just about communicating what we do, but how we do it, and why we do it,” he explained. “You need to establish a natural flow of communication between sales and credit.” Another step would be to look at the metrics the other side is judged on, and apply some of those performance measurements to your own department to illustrate the overall picture.
Cross-training and cross-reporting seems to be an increasing trend in some industries. The more frequent the interaction, in the opinion of Sammi McClanahan, customer finance manager at First Aviation Services, Inc./API, the more likely a strong working relationship will develop. “We hold weekly calls with our sales managers to review the status of all past-due accounts more than $2,000.00,” McClanahan says. “It takes about an hour for the review, but this also helps sales so they are always in the know regarding potential credit holds that would disrupt their sales, and any disputes get addressed immediately.”
Harold Epps, in marketing and sales of financial services at the CIT Group, also noted that helping sales personnel understand the credit role strengthens their ability to make money. “The most effective salesperson is the one who understands credit and the underwriting process, leading to better and faster prequalification of potential prospects,” he says. “Operationally, credit preserves the capital from risk, and sales pays your salaries. It is in everyone’s interest to better understand the other’s world, leading to more efficient and effective operations.”
Sara Keefe Heltner, director of operations and credit at Trade Acceptance Group Ltd., gave the example of monitoring aging receivables: when credit professionals communicate problems in payment streams to salespeople, it could help them make better decisions about using their time to pursue the right type of future business opportunities, which helps the sales team’s forecasting accuracy. And what salesperson wouldn’t want a head’s-up that could prevent wasting time on a bad lead? “Knowledge and sharing information are powerful and crucial for risk management,” Heltner says. “In the case of credit risk, it could make or break a small business.”
It’s well worth noting that for cooperation to work in reducing risk, both sides have to buy into it. Nobody wants to be subjected to constant dictation. As Karpinski characterizes it, this is not a one-way street. “Credit needs to step into the shoes of a sales associate and get a feeling for what it’s like. I want our credit associates to realize that sales associates don’t receive a regular paycheck like we do. If they don’t sell and collect, they don’t get paid. They are the front line, day in and day out, representing our company. Our job is to support them to the best of our abilities in their effort to achieve these goals.”
Darrell Horton, CICP, credit and collections manager with SHFL Entertainment, notes that in his 20 years of credit experience, he’s seen much success when credit and sales worked side by side. Both are in a field where information is critical, yet each is likely to have pieces to which the other side isn’t privy.
“In most companies, the sales team has one of the closest relationships with the customer,” Horton says. “The more I share with the sales team on what I need, the easier it is for me to get information. Many times, they have insight into the character of a company, which is a very important aspect in granting credit. When the sales team works with you and trusts you’re trying to find a way to approve the sale and not turn it down, they will go out of their way to assist.” Further, Horton finds that in “involving the sales team and letting them know what warning signs to watch for, I find out about a potential or upcoming issue much sooner. Bottom line: when you train and educate the sales team, they will generally help watch out for you, and be much more understanding when the answer is ‘no.’”
The Dangers of a “Turf War”
While training and involving sales and credit more frequently in each other’s worlds can be productive, caution should be exercised so relationships don’t become strained, as sometimes the crossover can get out of control and embolden too much activity from one side or the other.
“You don’t want to give sales the idea they have too much of a role in decisions,” says Taylor. “I’ve seen that happen when you expand roles too far. They want to decide the credit limit, or how far past due an account can be before you stop shipping. The lines should be drawn and clear between credit and sales as to ‘what is my role’ and ‘what is your role’ in the process. Turn them loose and let them try to sell as much as they can, but they need to honor your ‘no’ when you have to say it,” he adds.
Another problem Taylor has encountered is salespeople discussing confidential information gleaned from a credit discussion. Each member of the sales team should be trained on applicable credit ethics and laws to know what kind of information is off limits to public discussion. “Sources of information are crucial; if you get cut off from your sources because someone betrayed a confidence, you’re dead.” He added that, if such an occurrence happens, it’s not the salesperson’s reputation on the line; it’s yours as the credit professional.
Despite her support of cross-training, Kathleen Quill, CAE, CBA, president of the National Association of Credit Managers for Gulf States, admitted Taylor’s concern about the sales staff getting carried away is one that can and has come to fruition. However, she notes there are likely other potentially bigger problems within a company’s leadership if this occurs. “I think the relationship is already wrong if salespeople feel empowered to dictate terms instead of being a partner,” she explains. “At some places, salespeople are treated as the ‘king of the hill.’ When management understands the function of credit, this doesn’t happen.”
Karpinski agrees, noting it is up to management to try and foster the right environment for workers in various departments to thrive and play off of one another: “People often have prejudices. The issues are real, and we must deal with them to create an environment that supports collaboration toward shared goals and success. This is a philosophy that can’t just be on a plaque in the entryway. It’s a philosophy that begs to be lived out daily from the top down.”
Still, if all else fails, why not try the social route? Barbara Brenner, CEO of the International Association for Credit Protection and Insolvency Law, finds organizing social opportunities between the two departments can play a huge role in cooperation. “What about a regular joint working party for credit, finance, and sales?”
Summarizing this strategy, Quill believes it’s much harder to be “ugly” when you have socialized or shared a meal with another team’s members. “I don’t know that it helps you understand their job, but it’s better than nothing.”
Reprinted with permission, National Association of Credit Management. Article originally appeared in Business Credit magazine. For more information visit www.nacm.org.
