Credit Departments Challenged to Prove Greater Value
Finance executives and credit managers have long played a crucial role in helping their companies avoid unnecessary risks by providing clear-eyed analyses of prospective customers, managing risks and collecting payments from existing customers. But as corporations face increasing pressure to reduce costs and find new sources of revenue, the credit department, like every aspect of the business, is under pressure to demonstrate increased value to the company’s bottom line. It is not enough for credit departments to simply act as gatekeepers to prevent bad credit decisions; they are also expected to support company efforts to expand sales and meet growth targets.
Credit managers clearly understand the need to enable sales. In a survey by Credit Today, 34 percent of credit and finance professionals said that working more closely with sales was a top priority. But achieving this goal has proven more difficult than expected for many organizations. Credit and sales departments often operate at cross purposes. Sales personnel are rewarded with commissions, and so push to extend easy credit to maximize sales and commissions. In contrast, credit personnel are not rewarded for sales, but they may be reprimanded for lax credit standards; and therefore apply credit rules cautiously to minimize bad debt, slow pay, and other risks. Such circumstances tend to promote tension and conflict rather than cooperation between credit and sales departments. A lack of integration among their information systems, databases and processes further hinders information sharing.
Consequently, effective collaboration most often occurs only at the initial point of sale when new customers are approved and credit limits established. After that point, the credit department may provide little proactive analysis or insight aimed at expanding business with customers.
In truth, credit and sales departments share many important goals. Both want their company to increase its revenue and profits. Both want consistent and predictable credit policies guided by real insight into customer behavior.
Each brings to the table unique customer knowledge that can help the other succeed, particularly when their data is combined in rigorous, ongoing analysis of the customer lifecycle. The challenge is overcoming traditional obstacles to cooperation.
Technology Enables Sharing and Use of Business Information Across Functions
Recent trends in technology are breaking down corporate silos, including those in credit and sales functions, by enabling information sharing. For example, enterprise resource planning (ERP) systems have automated the exchange of information across manufacturing, sales, accounting, credit and other departments. Similarly, multiple functions are gathering and sharing more data about customers in customer relationship management (CRM) systems. Intelligently consolidating and tapping into these disparate data sources, however, is not always easy. One option is to utilize third-party business data services that can help companies unlock and enhance the value of their vast data stores. For example, a third-party data service can cleanse and enrich the data, thus facilitating efficient information sharing among a company’s systems to generate an accurate and complete picture of its customers. With the emergence of advanced analytics, credit organizations can leverage their customer data to identify promising business opportunities and automate credit management processes for faster, more efficient decision making.
These developments open the door to greater collaboration between the credit and sales departments through the sharing of data and insights about customer characteristics, trends and needs. Other departments, such as marketing and business development, can also derive similar benefit from a closer partnership with credit by leveraging a more complete view of customers. The result: lower costs and expanding opportunities.
Best Practices for Credit-Sales Collaboration
There is no precise blueprint or path for improving the credit department’s partnership with sales. Each organization must shape its activities to reflect its unique culture, operating model, processes and business goals. In working with companies that transform their credit departments into profit and growth centers, we have identified four best practices.
1. Shorten the Sales Cycle
Shorten the sales cycle with centralized credit decision making, robust prescreening processes and expanded automation of credit approval.
2. Centralize Credit Operations
Centralizing credit operations and decisions, as opposed to deploying credit resources across the enterprise, offers several advantages. It establishes a single, standardized process that is more predictable for sales and customers, and provides both with a single point of contact for addressing credit issues. Automation also helps avoid the inefficiencies and problems that can arise with manual processes, such as the many phone calls, e-mails, and faxes, rekeying of data, ad hoc credit reporting and inconsistent application of credit limits and other policies—all of which increase the potential for errors and delays.
3. Prescreen Credit Applicants
The data and capabilities already exist for more widespread prescreening of credit applicants. For example, third-party services can supplement a company’s own firmographic data about prospective credit customers. In addition, third parties can provide robust financial and risk measures, which can be calibrated to a customized set of credit rules. Companies can also create separate prescreening processes and rules for new customers, thus minimizing risk.
4. Automate Prescreening and Approval Processes
Automating prescreening and approval processes essentially pushes the company’s internal credit policies all the way to the actual point of sale, whether the sale occurs at the office, on the company website, or in the field through the use of mobile computing devices. In fact, automation significantly increases the benefits of a mobile sales force. Customers are better served by the swift and efficient approval process, as are the sales and credit teams.
Collaboration with the Finance Department Drives Results
By working together, finance teams and credit managers empowered sales to:
- Improve cash flow by reducing Days Sales Outstanding to 2-3 days
- Shorten sales cycle time by 10-12 days
- Increase up-sell/cross-sell opportunities by 2-3 percent
- Increase pipeline close rate by 2-5 percent
How to Start the Sales and Finance Collaboration
Company leaders intuitively understand the power of data and analytics to derive insights from the creditsales partnership, but undertaking such an initiative can seem overwhelming. Where should a company start? The process can be best understood as three basic steps:
Step 1: Information Gathering. Identify all sources of your customer data.
Step 2: Matching. Rationalize your business and customer data so you can integrate it and make it available across your enterprise.
Step 3: Analysis. Apply advanced analytics to understand and better server your customers, as well as identify your most promising prospects.
Although the plan is simple, not all of the activities within each step are necessarily easy. Matching and integration can pose a significant challenge for many companies. Devising the right analytics can demand persistence, creativity and perhaps new skills. Nevertheless, the time and investments is far exceeded by the payoff in improved customer service, increasing numbers of high-quality prospects, and a bigger bottom line.