Sales and credit: Teaming up to spot financial troubles

The credit and sales departments share a complex relationship that varies by company. While their level of interaction differs across organizations, their functions are fundamentally intertwined—credit departments vigilantly oversee accounts acquired by sales teams, evaluating both potential risks and opportunities for growth.

Why it matters: When it comes to noticing the signs of a customer experiencing financial distress, strong communication between credit and sales can help catch troubled accounts early and minimize risk. The sales team spends a lot of time with their customers and has a unique perspective that could help their credit team anticipate when there is trouble ahead.

By the numbers: According to an eNews poll, 31% of credit managers report occasionally hearing about a customer headed towards financial troubles from their sales team, and 8% say they are frequently alerted to these cases by their sales team. A majority say these cases are few and far between, with 43% of credit managers saying rarely and 18% saying never.

In-person visits are vital in both sales and credit, both for relationship building and for determining the appropriate amount of credit to extend to a customer. Due to the nature of their work, the sales team often visits customers on site more than the credit department, giving them a different lens to view the accounts that might reveal early signs of instability or insolvency.

“We have a very good relationship with our sales team, and we consider them our eyes and ears out in the field,” said Mark Zavras, CICP, director of credit for Sub-Zero Group, Inc. (Scottsdale, AZ). “So, if there are any kinds of troubling indications like key salespersons within an organization leaving the company, our salespeople will let us know.” While credit managers spend most of their working days carefully studying accounts receivable and zeroing in on any late payments from customers teetering around bankruptcy, there are red flags they might be missing that salespeople encounter every day.

“Sales plays such an important role in credit collections because they’re the eyes and ears out there,” said Staci Cima, CCE, director of credit at Springfield Electric Supply Company (Springfield, IL). “They’re the ones who see what’s going on with the company, the ones who have a relationship with people and hear what’s going on with a customer, so it’s important that sales, credit and collections are aligned and that everybody is working towards providing a great service for the customer and making money for the company.”

While sales might not have the same practiced eye that credit managers have when it comes to noticing signs of financial distress, the credit team can advise the sales team on what to look out for, many of which are far easier for the sales team to discern during an in-person visit than for the sales team to glean from their collections processes.

“What I always ask the sales team is, are you hearing grumbling from the customer?” Cima said. “Have you noticed that the demeanor of your main purchasing contact has changed or that key employees have left the company?”

Long-term employees leaving the company in big waves, shifts in communication with the customer or drastic changes to the day-to-day workflow of the business could mean they are headed down the road to insolvency, but you need your sales team to make note of these details in order to act on them swiftly.

“Salespeople are always looking at the numbers, so they might see that a company is buying 20% less,” Cima said. “Even that is a change that we in credit may not see until we start seeing the number of invoices, but in sales they see a change in buying patterns right away.”

Understanding sales as the eyes and ears of the credit department helps credit managers by granting them a larger swath of information on a customer, allowing them to make sound decisions that effectively minimize risk. “I will have the salesperson go out to the warehouse where our product is located and I’ll have them do an inventory of the product held there,” Zavras said. “Because I have security on that inventory, the company owes me $50,000, I want to make sure there’s at least $50,000 worth of inventory at that warehouse.”

The bottom line: Working closely with your sales team and increasing inter-departmental communication can help bring early signs of insolvency or bankruptcy to the surface. Credit and sales are rooted in two different aspects of a business’s day-to-day functions, but strong communication between the two departments can help improve profits and minimize risk.