Posted by Dawn Aldwinckle on September 28th, 2011
Following on from George’s previous blog post we bring you the final in this two part series:
Whilst all good finance departments should have a pro-active credit control process, the responsibility for good cash management should extend to other areas of the business.
1. Avoiding Customer Disappointment: Customer dissatisfaction of the product or service provided accounts for up to 70 per cent of all delayed payments. Overselling and under-delivering will not only impact your immediate cash flow, it will also affect your ability for repeat business. Overselling can be over-emphasising your product’s characteristics, but equally by not delivering on time and in full. To avoid customer disappointment, you should ensure your sales team have the correct knowledge of your products. Your sales team should know the lead times for production and shipping or have access to this information whilst out of the office.
2. Integrating Sales and Invoicing Processes: Your sales team should be in regular contact with customers. This provides an excellent opportunity to discuss any overdue invoices and the reason for delays in payment before new orders are accepted. The sales team should always have up to date financial and operational information available before meeting with a customer. This can include current debts, past payment history, current outstanding orders, and expected delivery dates, delays to deliveries, shipping schedules, current price lists and lead times. Mobile software solutions are available which can provide live financial and operating data for members of the sales team.
3. Aligning Commission Schemes with Business Objectives: Commission schemes should ensure there is a claw back of commission from sales teams where debts remain unpaid. Additionally, you could consider schemes which defer commission payments where credit terms are agreed as exceeding your target level. Once a sale is made, the responsibility for the sale should not be solely the responsibility of the finance department and incentivising the sales team should assist with ensuring cash is collected.
4. More than just Sales and Finance: Your procurement department should not be appraised based solely on cost savings especially if these are the result of deterioration in credit terms or through bulk buying from your suppliers. You should be able to monitor any savings made by your procurement department, improvements made to credit terms and stock levels. Confidence in your business processes and systems will enable you to run a “Just enough” approach to procurement, stock holdings and order processing. Additionally, you should ensure there are Service Level Agreements for Customer Services especially where these are an important USP for the business.
5. Communicating Internally: Once again, the importance of good internal communication cannot be ignored. You should ensure your departments are not working isolated. Department heads should be aware of potential new business as a large new order will impact current production times, future lead times, resources planning, logistics, finance and most importantly cash flow!
Author: George McDonough, Finance Director of Lakeview Computers Ltd