Accounts receivable – Should sales personnel be involved in collection?

Hopefully you have seen the Dos Equis beer commercials now airing where an actor is fictitiously characterized as “the world’s most interesting man.” The narrator’s descriptions of this man’s many attributes are widely exaggerated and hilarious if you, like me, appreciate hyperbole.  For those who haven’t met the world’s most interesting man yet, here is a clip:

In the business world I have found that the “most interesting men and women” are normally the company’s sales staff. They are strong-willed, motivated, success oriented, and normally very colorful individuals. Additionally, sales personnel must be tough, battle-tested, and resilient warriors who can maintain a positive mental attitude in spite of the many frustrations in the selling process, especially in todays challenged economy. With tenacity and perseverance, the sales staff’s victories allow the company to live to fight another day.

After the battle is seemingly won, however, the matter of collection can rear its ugly head. If the invoice goes past due, the organization realizes that the revenue process is not yet complete. So now what? Whose job is it to make that awkward collection call to the customer now that the account appears in the 1-30 days past due column? Back to our Dos Equis man, he is said to have once had an awkward moment, “just to see how it feels.” Should sales personnel risk the awkward moment by calling customers to talk about past due invoices?

One well-intended school of thought is to keep the sales staff separate and apart from the collection process. The theory is that sales personnel need to maintain only positive dialogue with customers in order to promote goodwill and, more importantly, repeat sales. Discussing past-due invoices runs counter to the friendly and non-threatening relationship desired between sales and customers, so the theory goes. The task is instead left to finance, the “bad cop” or “necessary evil” of the organization, in the event that collection is delayed. One of my previous employers operated in this manner. At first glance, this structure appears to make sense as it enables sales to avoid the awkward moment with customers, instead offloading this task to the “green visors” in the back office. The only problem with this approach, much like my previous low-fat diet, is that it doesn’t work.

Sales personnel begin to see the collection process as someone else’s job under the structure described above. “Whoa, I just sell this stuff!” is an actual quote I received from a VP of sales after alerting him to a past due receivable from one of his customers. In that organization, a really strange phenomenon occurred where sales personnel and the customer actually formed an unholy alliance to effectively “out” the finance department. The alliance was apparently formed in response to my unpardonable transgression of demanding payment on past-due invoices. The collection process became an impossible task at that point since the  top management of the company was fractured and dysfunctional.

The death of many small and medium-sized businesses is caused, sadly, by the failure to manage accounts receivable. Successful organizations must be structured, aligned, and focused on the end game – converting accounts receivable into cash. Collections cannot be solely the responsibility of finance because, left on its own, finance will fail. Sales staff must be empowered and incentivized to see the sales process all the way through to collection. Yes, that means that commissions are not earned and payable until the money is in the bank. Once sales personnel are compensated via a collections-based commission structure, the organization is appropriately positioned to make collection issues, and possibly cash flow issues, a thing of the past. You will then see your sales staff risking an awkward moment with slow-paying customers, truly making them the business world’s most interesting men and women.

B2B CFO® has perhaps the world’s most interesting tag line – Cash. We help you get.™ The fastest way to help my clients overcome cash flow challenges is usually the  implementation of effective collection procedures. Managing accounts receivable is really not a complicated or difficult task. I will have much more to say about collecting receivables in one of my next blogs and/or newsletters, but for now, “stay thirsty my friends.”