Most salesmen feel that their job starts with enquiry generation and ends with collection of a Purchase Order. Once the order has been given to Order Processing or production dept., they feel their job is over. It is then the job of the other departments to take over. This may be true to some extent but not in totality. The salesman being the face of the organization, the customer calls him first, when the delivery is delayed.
It should be remembered that different depts. Like Sales, Marketing, Finance, Purchase, Production and HR exist in an organization which are primarily for convenience in running an organization. From the customer’s perspective there is only one entity, the vendor organization. For simplicity sake, the customer equates the salesman as the company. You may get an order for desktops, laptops and servers from a customer but what the customer buys is not the product but an experience of effective computing to enhance his operations. The satisfaction of the customer is guaranteed with his seamless experience right from the moment of placement of an order to getting the desired goods/ services , working to his expectations.
A number of senior executives have told us that the main problem facing them is not about getting the order but getting the payment in time. It should be noted that quite often, it is the inordinate delay in payment that affects the company profitability.
Roadblocks in getting payments in time
- Narrow Focus of Salespeople : The salesman’s mindset is that his job ends with selling the required products or services. This mindset is the crux of the problem. On the contrary, the job ends only after he collects the complete payment, other documents and thus contributing to the company’s profitability.
- Collection is Finance dept.’s job : This statement is partially true though not in totality. Right from the prospecting stage, it is the salesman who has been interacting with the client organization. This familiarity should be used in getting the payment at an early date.
- Management’s obsession with numbers : In order to meet the set targets, the management is also responsible for the problems that arise. The sales executives undergo a high amount of pressure due to an obsession with numbers and believe that order closing is an end rather than a means to an end.
- Pressure tactics of Customers : The purchase dept. is fully aware of the pressure faced by sales executives. Realizing the desperation in getting a sales order, the purchase managers of large organizations will call the executives in the month-end and put forward their stiff credit terms. I have even heard of a respectable FMCG company telling its vendors that the latter can get their payment only after 180 days whereas this company collects 100% advance from their distributors thus working on suppliers’ money with a negative working capital.
A Complete Sales Cycle
A sale is complete only when:
- Goods are supplied, installed and commissioned
- Invoice raised
- Payment collected
- The cheque deposited in the bank
- Payment credited to the vendor’s account
Effects of Outstanding Collections:
- Your profitability reduces.
- Due to the reduced profitability, your selling price increases which can reduce your competitive advantage.
- The interest burden increases. In case of a secured loan, the interest may be around 15% but in case companies have to borrow in the open market from financiers, the burden may be so high that it can wipe out the profitability.
- In a worst-case scenario, it may drive a company out of business.
The Losses incurred by the company are:
- The Interest Cost: As discussed above, it is the interest cost and in turn the reduction in profitability that should be the prime concern.
- The Collection cost: Executives from sales and accounts need to spend their time in making visits, phone calls, etc., which consume valuable resources like time and money.
- The Opportunity Cost: Where repeated follow-ups are concerned, the matter gets escalated to senior managers, wherein the opportunities for new business get seriously affected.
For more details : refer Chapter 10, Financial Basics Every Sales Person should know from Contextual Selling: A New Sales Paradigm for the 21st Century by Rajan Parulekar, Managing Director, Paradigm Trainers Pvt. Ltd.
Other services: Effective Value-Selling of Capital Equipments , Effective Salesmanship for Premium Property, Managing Outstanding Collections, Skillful Negotiations, Key Account Management, On-Line Training, Coaching and Mentoring
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