All payments would be made quickly and on time in an ideal society. We all understand that this isn’t always the case, though.
Who should be in charge of pursuing payments for past-due receivables: sales representatives or credit departments? Check it out in this article.
This blog article will examine both sides of this debate and reach a judgment based on the advantages and disadvantages of each strategy.
Sales representatives should handle overdue Receivables
Let’s start by looking at the argument for sales representatives being held accountable for past-due receivables. After all, they were the ones who initially sold the item or service and are frequently the customer’s point of contact.
One argument in favor of this strategy is that sales teams are in the greatest position to pursue payments without harming relationships because they are the ones who know their clients the best.
Additionally, it seems sensible to link receivables to bonuses or commissions because sales representatives frequently get compensation depending on their performance. This would motivate them to ensure that bills are paid on time.
However, there may be a few disadvantages to this strategy. First, it could place too much pressure on sales representatives, who may already be attempting to reach their quotas and may not have the time or resources to pursue payments.
Some claim that because credit departments and AR have greater training and expertise in this field, they are better suited to manage collections.
To commit more time and resources to collections than a sales team, they often employ a specialized staff whose main responsibility is receivables.
Benefit Of Sales Reps Being Responsible For Overdue Receivables
This strategy has various benefits, including the following:
- Sales representatives are frequently more receptive to their clients than credit departments or AR, which could accelerate the collection process.
- Sales representatives may be able to persuade customers to pay more quickly by using their connections with them.
- The sales representatives would have a financial incentive to make payments on time using this strategy, which might assist in guaranteeing that payments are made as agreed.
Additionally, there are some possible disadvantages to this strategy, including:
- If the credit/AR department thinks they are not given enough time to collect payments, there may be a conflict between the sales and credit/AR departments.
- If sales representatives believe that following up with delinquent consumers may damage their relationship, they may be less likely to do so.
- This strategy can encourage sales representatives to work with clients who are less likely to make payments on time, which might increase past-due receivables.
The AR team should be responsible for overdue receivables
After examining the potential advantages and disadvantages of assigning the task of collecting payments to sales representatives, let’s think about a scenario in which the AR team is in charge of collections.
In most firms, the AR team is often responsible for handling collections. The AR team has a system and the know-how to handle collections effectively. However, making the AR team responsible for collections may lead to a few possible issues.
The most glaring issue is that the AR team would not be able to collect money as effectively as the sales representatives who have built connections with the clients. Additionally, if the AR team’s collection attempts are excessively aggressive, it might harm customer relationships and lead to a decline in future sales.
Another possible issue is that sales representatives could be less inclined to follow up with clients after a transaction to ensure they are happy with their purchase if the AR team handles collections. This can result in a decline in repeat business and total revenue.
AR Team Gaining From Handling Collection
The AR team might gain from handling collections in the following ways:
- Given that they have a history with the client and are familiar with interacting with them, they are more likely to receive payment sooner.
- Sales representatives are freed up to sell instead of chasing after money.
- Since sales representatives are not viewed as the “bad guys” in collections, it could enhance customer relations.
A few possible consequences of letting the AR team handle collections include:
- Since they don’t have the same relationship with the consumer as sales representatives, they could not be as successful in collecting as sales representatives.
- As a result of the sales team feeling like they are being “babysat,” there may be a conflict between the sales and AR teams.
- If the accounts receivable team continuously pursues clients sold to by sales for payment, it could cause friction between the sales and accounting teams.
Which One Should Take Care Of?
You have considered each of these options separately up to this point. What if, however, a method could be found for both teams to cooperate to recover the money owed? When it comes to collecting, each group of teams has various strengths.
Sales reps have deeper ties with customers, but because they don’t share those relationships, they might not be as successful at collecting as sales reps.
Because it’s their job, credit departments and AR could be more successful at collecting even if they don’t necessarily have the same connections.
Therefore, why not mix the two?
Credit departments and AR can receive the client contact details they require from sales representatives. Additionally, they can provide any pertinent details on the client that could be useful for collecting.
Credit departments and AR can also advise sales agents on approaching consumers regarding past-due receivables.
Several methods exist for doing this:
Have AR deliver monthly statements to clients and a list of their sales representatives. This makes it plain to the sales representative that they are responsible for following up, but it also places some duty on the consumer to know who they need to contact.
Another choice is to have AR provide the sales representatives with a list of clients with past-due accounts each week. The sales representatives are now directly responsible for following up, but they are also provided with the information to do so.
The ideal solution is probably a blend of weekly lists and monthly statements. By doing this, each party must understand their obligations and carry them out.
Clear Rules And Procedures
Clear rules and procedures are critical to guarantee that your organization’s receivables are paid on schedule. Observe the following best practices:
- Ensure that everyone is aware of their obligations and participation in the procedure.
- Indicate what “late” implies and the start date for collections.
- Inform consumers of changes to their accounts as soon as possible.
- Utilize a customer relationship management (CRM) tool to keep track of contact details and previous communications.
- Think about rewarding teams for enabling on-time payments.
- Maintain communication between sales representatives and AR.
- Encourage a collaborative approach to collection.
- Think about automating follow-ups and reminders with technology.