Before anyone clicks on the comment option to say that a business would not exist without sales, let me say that you are absolutely right. Sales is the engine of business, but the credit team manage the fuel (cash) that enables it to drive forward.
My question is really aimed at identifying where sales processes could be improved to reduce costs and eliminate wasted time for credit teams. The rationale for asking the question comes from data captured in the OnePosting Credit Management Benchmark.
Hard facts from the benchmark are combined with feedback from benchmark participants in this article to identify areas where small improvements in the sales process could have a beneficial impact on credit management.
21% rank ‘Pricing Issues’ as the number 1 query received
In the benchmark process, participants are asked to rank queries in the order in which they are received. In response, 21% ranked ‘pricing issues’ as the number one query that they receive. This is the second highest ranked query from all benchmark participants. By the way, the number one ranked query is requests for copies of invoices!
When I asked participants what was at the root cause of pricing issues, a very common answer was that sales reps agree prices with customers but never update the accounts team. As a result, invoices are issued with out of date pricing.
Let’s look for a moment at the impact of the failure to update the accounts team or the billing system with the correct pricing.
- A query is raised by the customer when they notice that they have been invoiced incorrectly.
- Each query has to be processed by the credit team (or by accounts or customer service, depending on the business structure).
- A credit note may have to be issued to cater for the discrepancy. This increases the credit note to invoice ratio for the business.
- The customer is going to have a bad experience which will reflect on the reputation of the company and may impact on future orders.
6% regularly experience payment delays due to pricing issues
The impact of sales not ensuring that pricing is correct can often be seen in delayed payments. Although 6% report his as a regular occurrence, a further 35% indicated that this occurs sometimes.
Another factor behind pricing issues was customers not clearly understanding the prices that they were being charged. This often occurs with new accounts and may point to a lack of clear communication between sales and customers.
15% of Credit Team time spent handling account queries
There is no doubt that a percentage of this time is spent resolving pricing issues. A number of survey participants indicated that they spend more time chasing sales reps to resolve account queries than they spend interacting with customers!
8% report incorrectly addressed invoices as an issue
It is not just pricing that causes issues for credit teams. Incomplete information when accounts are being opened is an issue for many businesses. The credit team can catch this if they are screening all new accounts but it increases their workload if they cannot identify an individual customer from the information provided and have to chase the sales team to gather it.
Another issue gathered from feedback is sales teams not updating accounts when the ownership of a business changes. This is especially important when dealing with retailers, where the business name over the door may not be the legal name that has to be invoiced. This can even lead to write-offs of amounts due because they are legally ‘uncollectable’ in many jurisdictions.
Everyone has invoices that require ‘Special Handling’
For 49% of participants in the benchmark, only a small number (less than 5%) of invoices require ‘special handling’. By ‘special handling’ I mean attaching backup documents, gathering purchase orders, or preparing ‘custom reports’. This means that for the majority of participants, more than 5% of invoices require ‘special handling’.
It is particularly in the area of ‘custom reports’ that sales can often impact on credit management by agreeing to requests from customers in relation to invoicing that are very resource intensive. This is not always factored fully in to the price charged to customers.
Can a price be put on the sales cost to credit management?
It is normally a ‘hidden’ cost and seen as part of doing business but it is a very real cost incurred by the credit team as a result of issues that it is possible to address in the sales team.
It also distracts the credit team from focusing on more appropriate use of their time. For example, instead of spending time on unproductive activities, the credit team could support the sales team by screening prospects, thus allowing the sales team to focus on more profitable sales.
Assess your Credit Function
If you want an independent and impartial review of the impact of sales on your credit function, take the Credit Management Benchmark.
It takes about 15 to 20 minutes to complete the assessment phase, and you will receive a comprehensive report within 3 business days.