9 Best Practices: Sales Reps Credit and Collections Tips

Managing accounts receivable effectively is crucial for maintaining healthy cash flow in any company, and Sales teams can play a “partner” role by assisting Finance with credit, collections, and customer payment deductions.

Bridging the Gap Between Sales and Finance

Tension between Sales and Credit & Collection teams can rise when problems related to credit and accounts receivable develop, but both share the responsibility for the financial viability of the customer. Several of the recommendations below encourage Sales to play a supporting role while AR drives much of the execution – so while it may seem like a bit more work, in actuality it is the minimum needed for a successful relationship.

Sales and Credit & Collection teams interact with clients throughout the order-to-collection process, making coordinated efforts essential for optimal results. Sales is responsible for securing orders, but their job isn’t complete until revenue is collected, requiring support from the Credit and Collection teams. Credit and Collection monitor aging receivables, alerting Sales when issues arise, and leverage Sales’ client relationships to expedite payments or gather feedback.

Actions by one team can impact the other — for instance, aggressive collection tactics can harm client relations, while promises made by Sales can exacerbate overdue balances. Therefore, alignment between the two teams is crucial, ideally through shared objectives and rewards for meeting collection and revenue targets.

Here are nine best practices for the Sales force to help ensure accounts receivable remain current, minimize delinquencies, and ultimately, maximize credit lines for new sales.

1. Onboard New Customers Thoroughly

Comprehensive Onboarding: It all begins with the proper onboarding of a new customer at the beginning of a relationship. This includes properly filling out a credit application and providing detailed information for billing. Sharing and explaining the seller’s policies and rules concerning credit, collections, and deductions is essential. It’s good practice to have the buyer sign your policy documents to ensure understanding and agreement. This link provides a sample Deduction Policy Statement to present to the customer.

2. Leverage Automated Credit Application Systems

Automate the Credit Approval: Start with an automated credit application system to streamline the credit data gathering and approval process and speed approvals. Utilize automated credit scoring tools to quickly assess a customer’s creditworthiness based on predefined criteria, reducing the time and effort needed for manual evaluations. With a good system, you can achieve a less than 24 hour turnaround for credit approvals.

Integrate Credit Applications with CRM: Ensure the credit application system is integrated with the company’s CRM. This integration allows sales representatives to initiate credit applications, access real-time credit status updates and helps them make informed decisions about customer orders.

3. Sales’ Proactive Involvement in Credit Management

Monitor Credit Limits: Salespeople should regularly monitor their customers’ credit limits. If a customer’s purchasing activity approaches their limit, the salesperson should proactively discuss this with the customer and with Finance to find solutions that facilitate continued sales.  Conversely, accounts with high credit scores and under utilized on credit limits need special attention for possible upsell.

Look for Potential Risks: Ensure Sales teams are trained to identify early warning signs of credit issues, such as changes in facilities, key employees, ownership, purchasing patterns or delays in payment. They should promptly report these to Finance for further action.

4. Assist with Accounts Receivable Collections

Early Engagement: Salespeople should engage with customers during the AR collection process. A friendly reminder from a trusted sales representative can often prompt quicker payment without straining the customer relationship. There are a number of reasons for late payments, which the salesperson should be on the alert for, including:

• The vendor master account was set up with the wrong terms, discounts or FOB.
• Issues with supplier order processing, compliance and billing procedures.
• Financial problems.
• Ingrained or intentional late payment habits.

Regular Check-Ins: Establish regular check-ins with customers to discuss account statuses. These conversations can help identify any potential issues before they become serious problems and demonstrate the company’s commitment to partnership.  Building effective relationship score cards is one of many ways to track the partnership with the customer.

Payment Plans: If a customer is experiencing temporary cash flow issues, salespeople can work with Credit to establish mutually agreeable payment plans. This approach maintains the relationship while ensuring eventual payment and can avoid hours of collections work on the back end to no avail. Ignoring past due receivables can lead to the loss of a customer (as they will seek other sources of supply where they have credit availability) as well as bad debts.

5. Provide Help in Resolving Customer Payment Deductions

Identify and Resolve Deductions: Sales teams should be vigilant about customer deductions, ensuring they are valid and promptly addressing any discrepancies. This can involve coordinating with the customer to understand the reason for the deduction, getting appropriate backup, and working with Finance to resolve it. In some cases, only the salesperson can resolve the issue.

• Misunderstanding of trade discount deals
• Contract misalignment
• Purchase Order terms conflict
• Pricing disagreement
• Process errors or compliance related fails
• Excessive ordering (and returns)

Educate Customers on Your Process: Educate your customers on the proper procedures and allowed timelines for deductions to minimize errors and misunderstandings. Clear communication with supporting data can prevent future deductions and streamline the accounts receivable process, especially it it is proactively delivered through automation.

6. Internal Communication and Collaboration

Regular Updates with Finance: Sales and Finance teams should hold regular meetings to discuss outstanding receivables, credit issues, and any concerns regarding customer payments. This collaboration ensures everyone is aligned and working towards the same goals.  Creating a portfolio strategy for sales using dashboards is a healthy process for any sales organization, including key actions based on the account statuses.

Shared Objectives: Align sales targets with financial health metrics. Salespeople should understand that keeping accounts current is in their best interest, as it allows for continued sales and demonstrates their value as problem-solving partners to their customers.

Leverage Direct Relationships: Salespeople, unlike credit associates, have direct relationships with the buyers, which can help resolve many issues more quickly by acting in partnership with their counterparts, especially when getting customers to complete credit applications. Additionally, salespeople are generally involved in the customer contract and ordering process, placing them in a prime position to influence the accuracy and efficiency of the process.

7. Analyze Customer Account Profitability

Review True Account Profitability – Customer P&L Idea: Here is an idea that elevates a salesperson to that of a true business partner. Just as the corporation has a P&L,  Finance can prepare a “Customer P&L,” which could include the impact of late payments as well as the cost of returns and deductions that reduce the net margins and consequently the value of the relationship, from the seller’s standpoint. Here is a very simple concept about this.

Example

ABC Retail Chain Financial Analysis

Budgeted vs Actual Gross Profit

Late Payments Analysis

This analysis helps in identifying problems that are eroding margins due to excessive deductions and late payments.

8. Customer Update or Problem-Solving Meetings

Periodic Business Meetings: Let the customer know that you would like to meet to identify and work out any issues in processes and the relationship, so you both can take proactive measures to keep the partnership soundly based. Let them know this will include an evaluation of billing and receivables issues, and that you would also want to hear of any issues from their side.

Review Accounts Receivable Statements: Before meeting with a customer, salespeople should access or request a copy of the accounts receivable statement, discuss it with the credit manager, and be prepared to discuss some details with the customer. This consultative approach will impress the customer, who will see the salesperson as a professional partner in the business relationship.

Review the Customer’s Supplier Ratings: Before meeting a large customer, the salesperson should review the customer’s supplier ratings for their company, which are generally published on the customer’s Supplier Portal. Rather than be blindsided by negative comments, the salesperson can be prepared with proactive actions ahead of time. In addition, go prepared with a list of any issues that you need to present from your side to improve the relationship.

Customer P&L Review. Review and present your evaluation of the relationship based on the P&L idea presented in  #7 above, if your analysis shows that some corrective action is necessary.

9. Training and Incentives

Training Programs: Provide training for sales teams on the importance of credit management, collections, and handling deductions. Equip them with the necessary skills and knowledge to address these issues effectively.

Incentive Programs: Implement incentive programs that reward sales representatives for maintaining low levels of delinquency , profitability and effectively managing their accounts receivable. This approach encourages proactive behavior and underscores the importance of financial health.

Conclusion

While meeting with a customer to discuss business problems and late payments may not be a favorite task for salespeople, it is essential for maintaining healthy cash flow and productive customer relationships. By adopting these best practices, sales teams can significantly support Finance in managing credit and collections, ensuring that accounts remain current and providing room in the credit line for new sales. This proactive approach not only ensures your company’s financial stability but also strengthens the customer partnership, fostering long-term business success for both parties.

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