Collections | 6 min read

    Should sales be involved in collections?

    Should sales be held responsible for bad paying accounts? And if so, when should they intervene?

    No. Salespeople are hired to sell. Let account receivables collect.

    Wait a second...

    A sale isn't complete until cash is received.

    Shouldn't salespeople have a vested interest in seeing customers pay on time?

    Involving sales in collections is a common point of contention – and a balancing act.

    This is especially true for service providers like telcos and lenders who depend on ongoing business. Putting pressure on customers to pay could upset them, and make them switch to a competitor.

    To help you walk this tightrope, we've gathered insights from CFOs and financial controllers and framed the question into 2 schools of thought.

    2 schools of thought:

      1. Collections should be the sole responsibility of the AR/collections department.
      2. Sales is responsible for the entire sales cycle – including collections.

    Where the collections function falls in an organization depends on its size, structure, and nature. These characteristics will dictate what constitutes a “complete” sale within the company.

    Pure sales vs. “cradle to grave” account management

    In some industries such as personal lending and banking, the primary client-facing role is an account manager. They are in charge of not just selling – but “cradle to grave” relationship management.

    In other words, they are responsible for a particular account from lead, close, credit approval, upsell, up until the bill is paid, collected or written off. In this case, the salesperson is responsible for collections until the account is sent to a collection agency (and will usually have collection targets tied to their compensation).

    1. Collections should be the sole responsibility of the AR/collections department.

    SalesVSCollections1-V2 copy

    Salespeople should sell. Period.

    Some sales departments are defined by this motto. The salesperson's sole responsibility is then to bring in more business. Having them collect distracts them from what they do best.

    Also, salespeople work hard to cultivate relationships with customers. Once they start collecting, these relationships could sour.

    After a single attempt, the client will start anticipating collection calls. From their point of view, the salesperson has shifted from “how can I bring value” to “pay me ASAP”. Having a separate person in charge of collection calls allows the salesperson to maintain a friendlier image.

    Our commissions are calculated based on gross profit on a monthly basis whether collected or not. I don't want our sales reps to be demotivated by having to wait for their compensation because of some issues that may be out of their control.

    Dennis M., Senior Controller

    2. Sales is responsible for the entire sales cycle – including collections.

    SalesVSCollections-V2

    This second philosophy can be summed up like this: the end goal of selling is to bring in revenue. If the bill isn’t paid, the sale was never completed.

    Bottom line: salespeople should proactively nudge customers to pay on time.

    Not only should the sales team have a vested interest in collections - their compensation should reflect that. There should be penalties for bad paying accounts and rewards for cash with order.  It prevents a common scenario: salespeople pushing bad customers through to inflate their numbers. 

    Moreover, salespeople hold an edge when it comes to collections: rapport with customers. Being on the front line and dealing with clients every day, a salesperson will likely have a better understanding of what is going on with specific accounts. Their insights should be used to collect and finalize the sale. 

    This is especially relevant for industries involving relationship sales and repeat business. If you want to thrive, your salespeople should do more than just aim for the next sale. They should develop long term relationships with solid clients. Involving them in the entire process, including collections, is a good way to drive this approach.

    The consensus among financial leaders who believe that sales should be aligned with collections is this: Put in your sales commission contracts that commissions are earned at the time of collection of receivables, not before.

    “We always payout after payments are received, consistent with the related cash flow from sales. Commissions are always paid within 30 days (often sooner) of receipt for related sales. A set percentage rate is paid until the quota is achieved by quarter (rolling during year) and then paid out at a higher rate thereafter. When collections come in later quarters, commissions are paid out at whatever the rate was from the applicable booking quarter.

    James S., Consulting CFO

    A middle ground

    Involving sales in collections is a double-edged sword. Holding salespeople responsible by tying commissions to collections can reduce DSO and improve cash flow. The question is, by how much and what price?

    Questions to ask yourself:

      • How much does a collection call from a salespeople cost versus the carrying cost of receivable?
      • By adding the burden of collections onto the sales team, will it backfire and reduce sales AND cash collected?
      • How will this practice affect the relationship between sales and customers?

    As a rule of thumb, salespeople should be aware of their accounts and their payment status. They can have the first crack at collection. If that attempt fails, the credit department can take over.

    In accounts less than 30 days past due, sales can inquire if there’s a problem with the customer. This is more akin to customer service than actual collections.

    But between 30 to 60 days past due, the collection effort needs to be done by professional collectors.

    This is because salespeople are not collectors.

    Companies who tasked sales with collection activities report that salespeople don’t want to be the bad guys with clients. They end up not being effective at collections or simply not doing it at all – even with training on how to collect with a soft touch.

    Pro tip: Discuss the account with sales before sending it to collections. See if they can provide any insight to help the collection process. It's at this point that a salesperson can choose to make a call to their customer contact.

    It's not a one-size-fits-all

    How involved sales is in collections will depend on the size of the company. In smaller companies, there is more overlap between roles. Larger ones can afford a full-fledged collections department and require more specialization.

    Here are the levels of involvement in collections for a salesperson as indicated by their compensation:

    Level 0. Collections has no bearing on compensation.
    Level 1. Commissions are not tied to collections, but if an account goes past due after a certain number of days or is written off, the commission earned on that business is netted against future commissions until it’s all clawed back.
    Level 2. 50% will be held until cash is collected.
    Level 3. Commission is earned at invoicing but not paid until cash is collected.
    Level 4. Zero commission earned until cash is collected.

    Key takeaways

      • The more your business depends on long-term relationship building, the more involved in collections sales should be.
      • Under many commission plans, sales people are only paid when the customer pays.
      • Salespeople should monitor diligently their accounts and payment status.
      • Salespeople can leverage their relationship with clients to take the first crack at collections for accounts less than 30 days past due.

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    Collections

    Victor Li

    Victor is Lexop's Content Specialist. He writes about Fintech's impact on both world-class companies and the lives of everyday people.

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