Credit Management and Sales – How Can They Work Together?

In traditional company structures, the Sales Department and Credit Managers were often seen as adversaries. The Sales Department aimed to generate the maximum amount of turnover, whereas Credit Managers had the task of reducing risks and payment defaults. In today's business world this separation of tasks is, however, increasingly negative for the success of the company. Instead, it can be seen that close and constructive cooperation between Sales and Credit Management is the key to sustainable success – especially in economically difficult times.

Effective cooperation between Sales and Credit Management already starts with the identification of attractive customers. Credit Managers can provide the Sales Department with valuable insights into the potential risks of a particular customer relationship and together they can develop strategies whereby turnover can be generated even from risky customers.

When starting business with new customers, Credit Managers also play a decisive role. Already in the acquisition phase the Sales Department can access the credit management software system and trigger the initial customer checks directly. For well-rated customers, Sales might then obtain immediate credit limit agreements, depending on the settings in the system. This not only accelerates the acquisition process but also reduces work for Credit Managers, who can then concentrate on the more complex cases.

Situations occur in which the credit line for a customer is insufficient to cover a particular business transaction. Instead of categorically rejecting the order, it is worth considering alternative possibilities. Payment plans negotiated with the customer can be a solution that makes sense. Guarantees provided by customers can also help to enable business to be conducted despite the limited credit line.

Shorter payment periods are a further option to maximize the turnover within a fixed credit limit. If the customer sticks to the agreed payment term, the credit limit can be optimally utilized without increasing the risk of default.

Commercial credit insurance can significantly reduce the risk on the debitor side. If the credit insurance company agrees cover up to the necessary limit, then in the case of payment default the supplier will only need to cover the policy excess, assuming the contractual obligations are fulfilled. A refined strategy could even include granting a higher credit limit than the one set by the credit insurance company in well-considered individual cases. This must, however, be done with caution, as the company then bears the risk of payment default itself.

In economically difficult times, customers often use supplier credit as a financing instrument and attempt to obtain extended payment periods. If this leads to a liquidity bottleneck for the supplier, factoring can be an effective solution. By selling its claims, the company can quickly obtain liquidity and thereby secure financial stability.

These are all possibilities to control the debitor risk whilst at the same time supporting the Sales Department in its activities and enabling turnover.

A further possible area of cooperation between the Sales Department and Credit Management lies in the analysis of the existing customer portfolio. Credit Managers can provide valuable information by presenting customers in a matrix with the axes "Relative contribution margin" and "Risk class". For example, customers with low risk and a high contribution margin can be selected for a targeted increase in turnover. At the same time, customers with a high risk and a low contribution margin can be identified, for whom it would make sense to change the modality of payment or to terminate the business relationship in the medium term.

Adopting risky customers into the portfolio can even be a strategy if market expansion is desired. Of course this requires an awareness that this could result in a higher level of payment defaults.

Ultimately, a balance needs to be found between increasing turnover and risk management. The Sales Department and Credit Managers should decide together which customers should be adopted into the portfolio and which measures need to be taken to minimize the risks. In some cases it could make sense to terminate customer relationships or to block any new business if the risk is too high.

Cooperation between the Sales Department and Credit Managers offers numerous opportunities for increasing turnover without endangering the liquidity of the company. The aim is not only to generate turnover but to realize it in a way which guarantees a reliable inflow of liquidity. A strategic and co-ordinated approach from both departments is thereby the key to success.