It is a myth that a credit department is a “sales prevention” department or a necessary expense rather than a revenue generator. A well oiled credit department, acting as a partner rather than a foe to sales can actually help increase sales. Here’s some ideas.
1. Extend credit to customers others have turned away
No, I’m not suggesting you throw caution to the wind and take on dangerously high risk and extend credit to anyone who wants it. That is a recipe for disaster. Rather, I am suggesting that you do a comprehensive credit analysis and know everything there is to know about the prospective customer. In short, know the risks and be prepared for them and be in a position to control the risk. For example, the inexperienced or rigid credit manager may deny a customer’s credit application on the basis of a history of slow pay. The customer is paying everyone one else sixty days slow, so credit denied and there go all of the potential sales. If you are strategic, you’ll address the slow payment trend directly with the customer and learn why payments are slow. There could a dozen reasons and not all of them the fault of the customer. Now, give the customer an opportunity to commit to you payment terms that are more to your liking and be prepared to follow up they day the customer fails to comply. The customer just may surprise you and you may lock up all of his business. The best way to control a customer is to create a dependency. If he can’t get credit elsewhere, he’ll give you all of this business.
2. Extend the maximum credit allowed, not just what the customer requested
I see this all of the time. Either the customer puts a conservative amount on that line on the application asking for an amount, or the sales rep, trying to get the account open with any line, submits one that is too low. Or, the amount on the application is simply the amount of the first order. The customer already has a supplier and wants to charge something his normally vendor cannot. The credit application is processed; things look good, very good in fact, so the conservative line is approved. However, if you are being strategic, you’ll determine what the maximum credit line could be, given the customer’s history and financials. Then, you’ll tell him, particularly if it is above his asking amount. Better yet, if the line is higher than his current vendor’s line, he’ll think you really want his business and he just may give you more of it.
3. Process credit applications faster than anyone else
Sometimes a customer needs your product yesterday. He realizes he doesn’t have an account with you so he either applies and hopes for the best, or he finds someone with whom he’s already set up and buys it there. If you are strategic, you’ll waste no time processing the credit application. In fact you’ll get started on it even if it’s not complete. You can fill in the blanks later. It should take less than an hour to get a sense of the customer’s credit worthiness; if it’s good, act like you want the business and accommodate. I’ve seen credit manager refuse to even consider a credit application until the one in hand is signed by an officer or owner. In a rush, do the analysis, make a decision and tell the customer, you are ready to go, just please fax over the signature page. Not only will the customer appreciate your extra effort, he’ll remember it when he needs to place another order. Not only that, you’ve made friends in the sales department and that can never hurt. Pre-qualify customers
4. Pre-qualify customers
Nothing aggravates a sales rep more than after working hard to finally get an order from a customer to have it denied for having poor credit. Being strategic is working with the sales group by having them submit their leads and doing a cursory credit check. Businesses with very good credit and very bad credit are easy to identify. So even a minimum credit check will tell you where the customer’s credit will fall. You can weed out the very bad high risk ones and notify sales not to waste their time and you can check the good ones and let sales know to go full steam ahead. As for the majority, if you are strategic, you’ll come up with the minimum line you could accept with what you know and tell the sales rep you’ve already approved the account. Again, not only are you a hero with sales, the customer will be flattered that he has an approved line before he even before asking for one. It might be the one thing that gets that first order.
5. Negotiate terms
Rather than turn down a customer, negotiate the terms. Remember, Cash On Delivery is a term. If you are not comfortable with extending credit with a customer for the standard thirty days, negotiate something like ten day terms or payment upon receipt of the invoice and be prepared to follow up on those kinds of terms. They customer will appreciate your giving him credit and will give you more of his business. Sometimes, businesses, particularly new ones, just need a little time to pay for the orders. If you give them that time, they are not only building their own credit history, they’re cementing their relationship with you and will do the majority of their business with the company that helped them out.
6. Establish a relationship
The sales rep does it, why can’t the credit manager? Customers will pay those they like and they’ll avoid those they don’t. It’s human nature. You don’t need to be the debtor’s best friend, but you can be a friend. When the personnel of one business like the employees of their vendors, they’ll do more business with them. It does no good for the sales rep to have a good relationship with a principal of a business only to be told out there on the golf course that his accounts payable clerk is forever complaining about the credit department. Good will extends to all levels. I’ve seen businesses take their business elsewhere because they could not get along with a cantankerous collector.
7. Be a credit resource
Along with creating a relationship, you can be a credit resource for you customer. Offer to do credit checks on some of their customers. If they are contractors, let them know when jobs are complete so that can protect their interests just as you would. Inform them of the latest trends in the industry. You may also assist them with your expertise. Pass on your collection tips for example. Anything you can do to help your customer make smart decisions, keeps them from turning into a risk. If your customer does not have a sophisticated credit office, the resources you provide are extras they get by being a customer and if they value the help, they’ll keep on buying.
8. Be a third party collector
If your customer cannot pay because he’s not been paid, jump in and help him out. This works in construction. If my customer is a subcontractor dependent on the general to pay, I’ll call the general. Sometimes it’s enough to ignite payment and my customer was saved having to do something he’d rather not do. We become partners this way and I get a larger share of the business.
9. Aggressively assist in dispute resolution
Nothing sours a relationship like unresolved disputes. Often the dispute has nothing to do with credit. It’s pricing or something to do with shipping or production. But if all you do is sit back and wait for something to happen, you’ll have little more than an outstanding receivable and a frustrated customer. However, if you are on the forefront of fixing the problems, the customer will recognize your company as one that takes care of things. They’re more likely to do more business with you.
10. Don’t be Bureaucratic
All of these suggestions point to one theme. Avoid appearing to be an impersonal, uncaring rule driven bureaucrat. Customers want to do business with companies that attend to their needs with a personal touch. The fastest way to alienate a customer is by insisting that everything be done by your rules and policies. If you are strategic, you get what you need by making the customer believe he’s the only customer you have and you’ll do just about anything for him. If he thinks you are willing to bend the rules a little, because you think he’s special, he’ll give all the business he can rather than give it to someone who treats him like a number.
If your credit department needs to be more strategic in its practices and procedures, contact us at Strategic Credit Management Solutions at http://powerscredit.com/ or email us at patrickpowers@sbcglobal.net. Your comments are welcome.
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