How can both the sales manager and credit manager learn to appreciate each other’s responsibilities?

The current chapter in your textbook has pointed out that careful handling of accounts receivable is a must for a successful firm that sells on credit. As in so many aspects of finance, the precarious equilibrium is the secret of astute management, and when that equilibrium is allowed to deteriorate, there will be problems for the firm. In most firms, there are two opposing forces that influence the optimum point of balance. Those forces are the credit manager and the sales manager.

The credit manager is charged with seeing that the firm does not extend credit to bad risks. The credit manager has at his or her disposal a whole arsenal of devices to determine and ensure the creditworthiness of those who want to charge items at the store. The credit manager knows that the way to avoid risk altogether is to demand cash for all purchases. This way no one would default on payments because there would be no payments to worry about, only an up-front, before-delivery lump-sum payment by the customer to the store. Much as he or she may want to ignore the fact, the credit manager knows that such a pure, risk‑free environment will greatly discourage sales. So, the credit manager allows credit contracts for those people who have evidence that they can pay on time and completely. The problem is that the credit manager tends to interpret that evidence in a manner slightly different from that of his antagonist in this financial drama—the sales manager.

The sales manager might approach a client by saying, “Out of work now, Mr. Cline? But those relief payments are coming in regularly, aren’t they? Good. Then you can easily afford $50 monthly payments on this sofa. Sign here, and we’ll have our truck deliver the sofa to your house today. Thanks for the business.”

You can imagine how the credit manager would react when he interviews Mr. Cline and sees the firm is expecting $50 a month from a relief recipient. The credit manager will refuse credit to Mr. Cline—and the sales manager will hit the ceiling. “No credit; what are you talking about? Aren’t you credit people playing on our team? How can we make sales if you people turn everyone down?”

Successful firms stress to both credit and sales staff that both are important elements and that striking a fair balance does not mean defeat for either side but a victory for the firm.