A lot of occasions, mostly in company meetings, delinquency management is almost always one of those agenda that results in heated discussion and/or arguments between the sales/marketing group at one side and credit & collection department on the other side. Most of the time I am asked, “whose job is it anyway?” Well, I would always tell them that no matter what is the merit of the case, whatever is the situation and what points or reasons are being raised, they have to agree on this simple and most important company principle: A SALE is NOT a SALE until THE MONEY HAS BEEN COLLECTED.
Most companies, especially those with big marketing or sales group, have a lot of incentives being given for hitting respective targets/ quota. I always advise them that if ever there are incentives being given for a particular credit sale, it must be only based or given if that particular “sale” is already collected in full or if only half is collected, it follows that only half of the incentive is also released. In this case the salesperson will have a mindset that anything that is still NOT YET PAID is not considered a SALE. Now, in this set-up, especially if there is a separate collection group that is tasked to collect, the salesperson will sometimes (if not always) put the blame of non-collection to the credit and collection group. The sales group will raise a lot of issues such as “incompetence”, not enough effort, or the much classic line: “is it our fault if the credit and collection group cannot collect a legitimate contract/ transaction?” or to that effect.
This is the reason, why in all of my talks, I always push companies to have a simpler, clearer and well-discussed credit granting and collection policy coupled by escalation matrix. In drafting your Credit & Collection Policy, it is very important to start with the objective. Of course, one must have in mind that there are a lot of factors to consider in drafting and designing credit and collection policies such as availability of resources, capitalization, competitors, industry practice, product or services, target market or kind of customers, territory among others. Credit and Collection Policy acts like a road map or a direction especially if you are already experiencing delinquencies in receivables or worse, you are already having an infighting between your sales/ marketing group and credit and collection department. As you know, delinquencies in receivables needs to be monitored because of the following reasons: delinquencies makes: (1) working capital tied up; (2) business operation disrupted and complicated; (3) company growth slowed down; (4) causes business failure; (5) the creditor financier for free; (6) the company requires to borrow more than necessary to finance receivable; (7) profits to be drained and/or reduced; and (8) lastly delinquency prevents build up of reserve for seasonal or long-term demands.
So, whose job is it? My answer is, it’s EVERYBODY’S job to protect the company’s investment in every credit sales transactions; to ensure in collecting every credit sales; to provide management automatic feedback on possibility of any delinquency of account/s; to take an objective, long term view of any credit sales transaction both as an opportunity or a “danger signal” and lastly it’s everybody’s job to preserve the company’s goodwill to all customers by opening & maintaining channels of professional contact with them.
For more credit & collection (C&C) questions, comments and rejoinders you want to share or inquire, you can reach me at 0917-7220521 or at elimtingco@cibi.net.ph