Is credit a finance function reporting to the Head of Finance?
Is credit a sales function reporting to the head of sales?
Is credit a stand alone function that exists somewhere between the two?
Where ever the function fits in your organization depends on how you view the function and your definition of what a sale is.
If your sales people are target driven and they are rewarded for bringing orders into the business and their involvement ends there, then it is best to have credit as part of your Finance team overseeing the process.
If your sales people are rewarded on the basis of cash received then it is best to share the credit expertise with the sales staff, and if you count the sale when the money goes into the bank then you are better off having credit as part of sales.
If you have a large business where the professional management of credit is vital, you might be better off having it as a stand alone function reporting to a Director of Credit who is responsible for managing the margin from start to finish.
Whatever way you structure it, you can be sure of two things: there will always be some level of conflict and every member of your staff has to work together for the benefit of the whole business.
It is important to look at what results you will achieve by the different approaches before you decide what is best for you. If you reward salespeople for bringing in orders, they will be more likely to bring in higher risk accounts, they are more likely to be annoyed if an order is held for any reason, and they are more likely to demote the collection of money to the lowest priority on their daily task list. At the end of the day if they can only make one more call and the choice is between making a sale or collecting a cheque, they will make the sale every time.
If you reward salespeople on the basis of cash received they will end up spending a large proportion of their time collecting money from customers, they are more likely to qualify their buyers and at the end of the day if they can only make one call and the choice is between making a sale or collecting a cheque, they will collect the cheque every time.
It might come as a shock for you to hear that my views are not what you might expect from the Credit Coach, I believe salespeople should sell and credit people should arrange the payments. Credit and Sales have to work together and in an ideal world I would like to see a system as follows:
The sales person brings their prospect list to the credit controller or manager – the list is vetted and the salesperson told in advance the ones they should concentrate on and the ones that will not be offered credit by the company.
The sales person clearly agrees payment terms with the customer in simple terms, if it is a monthly account they should explain that you will supply goods for the month of June and you expect to be paid on the 28th July for them.
The sales person clearly agrees pricing and details of the service that was promised and takes responsibility to communicate that to the relevant person in the office.
If the salesperson works to a journey plan, that should be communicated to the credit controller who can say to the customer: “John will be in Castlebar next Tuesday will you have a cheque for €x for him?” When the commitment is received the request is passed on to the salesperson, who collects the cheque as agreed.
The salesperson is kept informed on the status of all their accounts and should get notice if there is a chance that credit will be withheld from any of their customers at a future time.
Time should be set aside every week/ month for the credit controller and salesperson to discuss the contacts with the customers, the issues they are having, with a view to resolving customer queries in the shortest possible time.
Working together for the benefit of the whole company is the key to success.