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May 01 2018
Want Better Cash Flow? Listen to your Credit Team.
Susan Archibeque, CCE, Nicholas and Company

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.

  1. 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.
  2. 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.
  3. 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.