Getting the edge in professional selling
Terence A. Hockenhull

THE ONEROUS RESPONSIBILITY of invoicing clients and collecting payment often falls to the accounting department. Yet it is the sales team who must identify clients and close sales. Unfortunately, sales executives are so keen to close sales, they neglect to check the client’s capacity to pay, leaving a nasty mess for the accounting department to clean up! Today’s market landscape demands that salespeople take considerably more responsibility in this area, ensuring that the client has the financial capacity to pay and the willingness to meet payment schedules.

Pressure is often brought to bear on the sales team to maintain or increase sales in markets that may be temporarily or permanently depressed. Most salespeople believe that adding the additional dimension of credit and collection to what is already perceived as a difficult task is likely reduce their ability to close sales and result in falling revenues. Consider this, however, the salesperson who loses a sale because of payment terms, loses a single sale. The salesmen who pushes that client into buying when he can ill-afford the purchase may head back to the office with the satisfaction that he has met quota, achieved a monthly sales target or demonstrated his ability to sell when times are hard. However, his company may have lost the total value of the merchandises as well as all of the other costs associated with chasing payment.

This presents no problems for the company that insists on cash on delivery terms. However, few companies engaged in major sales, seeking to build loyalty or resell to the same clients time and time again can afford the luxury of demanding payment “up front.” Competitors offer credit terms; so too must they! Indeed, there is widespread recognition that credit terms can significantly influence a customer’s decision to buy. Recently, I was speaking with company that carefully evaluated its credit and collection policy resulting in a reduction to 30 days. The response from their client base was unanimous. “Why are you insisting on 30-day terms when everyone else is offering 60 to 90 days?” The expected and perhaps inevitable result has been to lose some key accounts. But certainly not as many as they expected and the losses have been made up for increased sales in other business areas. Tying in prompt-payment incentive schemes has helped. The net result is that the company now feels it is in better financial shape with more funds to invest in inventory and client services.

The fact of the matter is that salespeople must take the initiative when it comes to credit and collection. Perhaps one of the reasons that they find this issue so difficult is because they don’t take the time to prepare the customer for their terms. Rather than telling a client that 30 days is the maximum credit term offered, they tend to fudge the issue. They may choose not to mention the terms at all. In this case, one can hardly blame the client for being ill prepared to pay up after 30 days. And, if they have to respond to a question about terms, they often say something like, “Our terms are 30 days but no one’s going to be too worried if that stretches out to 45 days.” What also happens is that when the account falls due after 30 days, the salesperson has already relieved himself of the responsibility of following up on collection. By the time the accounts department has recognized the account is past due, written an initial demand letter or statement of account and forwarded this to the client, 45 to 60 days may have passed. This of course, tells the client that nothing will be done about an overdue account until 45 to 60 days. Ipso facto, the credit term is now recognized (by the client) as 60 days!

This is an area where the sales executive can and should help. Rather than allowing an account to become overdue, he should meet or call the client a few days before the credit term expires to politely remind him that the account balance is due. And in asking for payment, a specific time for the check to be released must be ascertained. “What day will you release the check?” is much better than “Call me if the check is ready.”

The manufacturer/wholesaler to retailer/supplier cycle is an interesting one. Consider the retailer who passes his product on to the end user. His sales and marketing efforts coupled with the marketing efforts of the wholesaler or manufacturer should create the demand to move a fixed amount of stock every month. In simple distribution channels, the sales of the monthly inventory should be quite sufficient to realize a profit and pay the wholesaler or manufacturer within a 30-day credit term. Although sales may vary slightly on a month-by-month basis, the retailer should be in a position to order sufficient inventory to meet his following month’s sales (with perhaps a small amount in reserve for unexpectedly large orders). However, it is not uncommon to find salespeople “overstocking” clients with three or four months’ supply. The reason for this may be to boost sales in a lean month, move an excessively large inventory or simply because the client has been easily persuaded to place a large order. The poor retailer is now faced with paying for merchandise he has no chance of selling for another two or three months.

Overstocking clients is counterproductive. In addition to credit and collection problems, it makes a salesperson’s monthly sales uneven and may force him to overstock other clients in a similar fashion to maintain quotas or sales targets. Sales executives should resist the temptation to sell more stock than their customers can move within the credit term period. 

The simple rules of credit and collection are to tell the client, at the time of the sale, exactly what the credit terms are. Convey firmness in respect of collection and notify clients that they will follow up on the account prior to due date. Where due dates are passed without payment, the salesperson must inform the customer accordingly.

Terence A. Hockenhull is a long-term resident of the Philippines. He is an accomplished sales consultant who currently holds an executive sales position with an Italian geotechnical company.