USING
CREDIT AND COLLECTIONS
TO INCREASE SALES
BY
SCOTT JEFFERSON, NEWTON & ASSOCIATES
Whether your company is family owned, a regional business, or a national operation, it has experienced the traditional tug of war between sales and credit. This antagonism, however, need not exist. In fact, a well-conceived marketing plan can coordinate credit and sales to improve profitability.
Sell More to Your Best Customers
The goal of a winning marketing strategy is to further penetrate existing sales markets and expand into new markets. One way to increase sales to your current customers involves reviewing the credit lines and payment histories of the top 20 percent of your customer base. If justified, increase those credit lines by 10-30 percent. The credit department (see Exhibit 1) should send a congratulatory letter to the customer informing them of their increased purchasing power.
The customers to whom you offer credit line increases should have strong financial profiles and solid payment histories so that you actually assume very little additional risk. By encouraging your best customers to buy more, you should not see an increase in day’s sales outstanding, (DSO) or collection problems, and in fact, you might see a reduction in DSO.
The next category of customers you can target are those whose balances are below their approved credit line. Assuming they have satisfactory payment records, you can encourage additional sales simply by writing letters.
Use Credit to Increase Market Share
Another target group is potential customers. The marketing plan should address the possibility that your customer base may require a more liberal or flexible credit policy. The success of any marketing plan is contingent upon the cooperation of the credit department. New sales are meaningless unless there is a receipt of money for the goods provided. So how does a company protect profitability and still increase its customer base? It does it with an aggressive marketing plan that liberalizes credit-granting policy, coupled with increased aggressiveness in following collections.
Successful receivables management requires a proactive approach to collections that is event sensitive not time sensitive, in separating customers from debtors,
The risks derived from more liberal credit granting are mitigated by more aggressive collections combined with a process whereby the undesirable accounts are weeded out. Broadening your customer base spreads out your risks. Subsequently, identifying and canceling the credit line of debtors who have become liabilities directly reduces your risks.
An Aggressive Collection Strategy
Make collection calls on current invoices. By calling five days before the due date, you establish control over the remittance process and obtain the first promise to pay from your customer.
The next phone call should occur within ten days after the due date. The customer should also have received a past due reminder by this time. Because the customer should have made a commitment to pay during your first call, this call serves as a follow-up to the customer's broken promise. Your polite assertiveness will ensure faster payment and keep accounts from becoming delinquent. You will also be able to ascertain whether you want to maintain a business relationship with your customers. If they turn out to be debtors rather than customers, you have a head start on the collection process in your efforts to maximize what you can collect in-house.
Sales and Credit as Partners
Do not wait for your sales department to approach you. Use these examples to advise your marketing personnel of the sales opportunities inherent in your accounts receivable portfolio. Then, with credit and sales working together, a marketing plan can be implemented to increase your company's sales, customer base, and profits.
EXHIBIT 1
Sample Letter
Dear Valued Customer:
Your business with our company and your excellent payment record entitle you to an increase in your credit line. Your buying power has been increased to $XXXXX.
If you have any questions, please do not hesitate to call your account executive, or us
Sincerely,
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