I ran
across an article in CFO Magazine written by Eric Dowdell, titled Want
Better Cash Flow? Listen to your Credit Team. Eric states that no CFO worth
his or her salt would pursue a "sales at all costs" strategy. So, why are so many
corporate balance sheets littered with predictably late-paying accounts? The
sales-hungry climate built by these pressures is a double-edge sword. The good
news is that many companies are starting to book more sales. The not-so-good
news? Comparatively few companies are collecting efficiently on those sales.
Eric
states in the article that companies that don't do front-end diligence with
respect to customers creditworthiness inevitably pay for it on the back end. So
how do companies keep their focus on revenues without minimizing the importance
of profitability? Part of the solution resides with the credit team. Think
of the credit team as an oracle of corporate finance. The sales
team might be a company's most valuable intangible asset, but it needs the
market intelligence provided by the credit team to operate efficiently.
Accounts receivable, similarly, is the largest asset on the balance sheet at
many companies, but only the credit team can foresee the collectibility of
those accounts.
Eric goes
on to state that maximizing cash flow doesn't always mean making more sales; it
means making more profitable sales. CFO's can leverage their credit team to do
so in three ways.
- Enable the sales team with real-time
credit decisions. To secure profitable sales in real time, salespeople need
direct access to the company's credit system through their customer relations
management system. We use salesforce.com and are working on integrating
data from D&B, and other credit agencies that will provide real time credit
data to help guide our sales team.
- Drive a credit-approved pipeline at
the start of the quote-to-cash cycle. Together,
credit and sales teams can develop a list of pre-approved leads or target
accounts that can be loaded into a customer relationship management system for
sales action. Decisions based on credit scores would automatically provide
a pre-approved account list for sales to pursue.
- Use
Risk-based predictive scoring. On-time payment is only one facet of
an organizations financial health. Only a holistic risk-based approach to
examining a customer's creditworthiness can identify those who pay quickly,
underutilize their credit limit, and are unlikely to default or go out of
business. This is an excellent way for us to find significant growth
opportunities in our existing portfolio. Predictive scoring is key for not only
mitigating credit risk in an established customer base, but also for
identifying untapped areas of opportunity.
Putting
the customer's credit check before the purchase can drive sales while also
improving the customer experience. Of course, the credit team can't drive
profitable growth alone, but neither can sales. The good news is that a modern approach
to credit management can mitigate the risk of a "sales at all costs" environment
without hampering the sales team's performance. Together these teams can rally
around a common cause that eludes so many in today's profitable growth.
One of
the most difficult aspects of my job is telling a salesperson that we cannot
extend terms to an account that they have spent months going after. This
article really hit home with me as we are currently looking at software
applications that allow us to import real-time data from outside agencies along
with our own AR data, and develop a simple red, yellow or green rating on all
new and existing accounts. Green rating is "go" yellow is "proceed with caution" and red is "stop." This rating will help sales to focus their attention on
creditworthy accounts.
There is
a level of trust that is extended between credit and sales and we will need to
provide extensive training to educate our sales team on the confidential nature
of the information that is to be used strictly internally and not shared.
Ultimately, when we are focused on going after creditworthy accounts, accounts
that we presently sell to and who pay timely, or new accounts that have an
established track record, we are more productive and there is much less conflict
between credit and sales.
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