Sales and Collection Departments Need to Work Together for Company Success

Steven Coyle is the managing consultant of ServiceWinners International in Malaysia. He is a veteran collections executive and author of the book “Debt Collections: Stir Fried or Deep Fried?: Asian and Western strategies to collect more money, reduce bad debts and keep more customers.” He has lived in South East Asia since 1995.

Employees’ Primary Role

What’s the primary role of employees for the organization?

When I ask that question to a room full of supervisors or managers, I normally hear, “To make our companies money.” But is it our primary role as credit professionals?

Look at the top 50 companies in the Fortune 500 list of ten or twenty years ago. Many of yesterday’s most successful companies have disappeared. How did it happen? Who would have thought companies like McDonnell Douglas, RJR Nabisco, Digital Equipment, Enron, Allied Signal, and Rockwell International would either disappear or become merged by larger forces?

The primary role of an employee is to ensure their employer’s survival. It makes sense. If you believe organizations are living things created and run by living beings with the intent to grow, thrive and provide sustenance for its members; then its ultimate goal – like in nature itself – is survival. Just examine the root of the word “organization.” The credit and collections function is an important organ within any organization. Without the organ functioning properly, the organism dies.

Companies disappear when the management is preoccupied with making money. As our sport coaches tell us, “Never take your eye off the ball.” As a manager, if you’re following your secondary role (making money), and your competitors are following the primary role, guess who’s going to lose the game? This is especially so in today’s work environment where we face competition both domestically and internationally. Andy Grove, co-founder of Intel, sums it up well: “Only the paranoid survive.”

Many companies focus exclusively on sales. They think that by selling more they earn more. Instead, the focus should be on helping customers because if you don’t help your customers, they won’t help you.

Sales people have a difficult job getting people to buy, but a sale isn’t profitable until the money is collected.

So, let’s go back to the question: Where do bad debts come from?

Extending credit and experiencing bad debts are facts of life for businesses. Organizations bear credit risks in order to increase sales and stay competitive. However, the risks are manageable with proper strategies and controls in place. The key group that sets the drivers for effective debt management is an organization’s senior management.

It’s easy for the senior management to set unrealistic bad debt targets while launching aggressive sales programs with easy credit terms. When the bad debt numbers inevitably increase, fingers are pointed at the credit or collections department. But pointing alone doesn’t fix the problem. Until senior management takes a firm stance on combating bad debt, its bad debt targets likely will never be achieved.

If a company has a banner sales year, should the sales department take all the credit? Did the sales department do it all themselves? Or did the engineering department help by designing good products, or customer service by providing good after-sales service, or marketing by creating excellent promotions? In fact, it’s a team effort.

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The same holds true for bad debts. The credit and collection department alone can’t take full credit or blame for a company’s bad debt levels. The sooner senior management recognizes this, the faster organizations will take control of their bad debts instead of the other way around. David and Martin Sher write in "How to Collect Debts and Still Keep Your Customers":

Collection departments alone don’t cause bad debts – bad management causes bad debts. You can’t blame the doctor for the number of sick and ailing patients. You also can’t necessarily blame your collection department for the large number of sick and ailing accounts.

Organizational Disconnect

Many sales and credit professionals confide in me that the other party doesn’t fully understand their business. Sometimes they will say that senior management doesn’t fully understand the business, too. Usually, both the sales and the credit people are the ones who don’t fully understand.

A customer-centric organization’s top priorities should be (in order of importance):

Survival
Helping Customers
Earning Profits
Increasing Sales and Reducing Expenses

Now, let’s see if the focus of the sales and credit departments aligns with the organization’s priorities:

Priority No.	Organization	Sales Department	Credit Department
1	Survival	Increase Sales	Reduce Expenses (bad debts)
2	Helping Customers	Increase Sales	Reduce Expenses (bad debts)
3	Earning Profits	Increase Sales	Reduce Expenses (bad debts)
4	Increase Sales & Reduce Expenses	Increase Sales	Reduce Expenses (bad debts)

Many sales and credit departments have only one priority. Is it any wonder there’s a disconnect between these two groups and the organization? The sales and credit people point fingers at other groups for not knowing “what’s really going on” when in fact they’re the ones confused. It’s at Priority 4 where sale’s and credit’s priorities are aligned with those of the organization.

If your department’s priorities are misaligned with those of your organization, then you’re missing the big picture. You’re working in a silo.

Did you ever think that your top priority wasn’t to collect money? Instead, concentrate your efforts on ensuring your organization survives, help your customers by providing excellent service, help your organization maintain profitability, and you will find yourself collecting more money than you have ever collected before.