In a perfect world, all payments would be made promptly and on time. However, we all know that this is not always the case.
When it comes to overdue receivables, who should be responsible for chasing down payments: credit departments/AR or sales teams?
In this blog post, we will explore both sides of this argument and come to a conclusion based on the pros and cons of each approach.
Sales reps should be responsible for overdue receivables
Let's start off by examining the case that sales reps should be responsible for overdue receivables. After all, they are the ones who originally sold the product or service and are typically the point of contact for the customer.
One argument in favour of this approach is that sales teams know their customers best and are therefore in the best position to chase down payments without damaging relationships.
In addition, sales reps are often compensated based on their performance, so it makes sense to tie receivables to their bonuses or commissions. This would create more of an incentive for them to make sure invoices are paid on time.
On the other hand, there are a few potential drawbacks to this approach. First, it could put undue pressure on sales reps who are already trying to meet their quota and might not have the time or bandwidth to chase payments.
Some people also argue that credit departments/AR are better equipped to handle collections because they have more experience and training in this area.
They also typically have a dedicated team whose sole focus is on receivables so that they can devote more time and resources to collections than a sales team.
The pros of sales reps being responsible for overdue receivables
There are several pros associated with this approach, including:
- It could help speed up the collections process since sales reps are typically more responsive to their clients than credit departments/AR.
- Sales reps may be able to use their relationships with clients to encourage them to pay sooner.
- This approach could also help ensure that payments are made in a timely manner since sales reps would have a financial incentive to do so.
The cons of sales reps being responsible for overdue receivables
There are also several potential drawbacks associated with this approach, including:
- There could be tension between sales and credit/AR departments if the latter feels that they are not being given enough time to collect payments.
- Sales reps may be less likely to follow up with clients who are behind on payments if they feel that doing so could jeopardize the relationship
- This approach could incentivize sales reps to sell to customers who are less likely to pay on time, which could ultimately lead to more receivables being overdue.
The AR team should be responsible for overdue receivables
Now that we've looked at the potential benefits and risks associated with making sales reps responsible for chasing payments, let's consider a situation in which the AR team handles collections.
Collections being handled by the AR team is the norm in most businesses. The AR team has the expertise and process in place to manage collections efficiently. However, making the AR team solely responsible for collections can result in a few potential problems.
The most obvious potential problem is that the AR team may not be able to collect payment as efficiently as the sales reps who have established relationships with the customers. In addition, if the AR team is too aggressive in their collections efforts, it could damage relationships with customers and result in less sales in the future.
Another potential problem is that, if collections are the responsibility of the AR team, sales reps may be less likely to follow up with customers after a sale to ensure that they are satisfied with their purchase. This could lead to fewer repeat customers and lower overall sales.
The pros of having the AR team handle collections?
There are a few potential benefits of having the AR team handle collections:
- They're likely to get paid sooner since they have established relationships with the customer and know how to work with them
- It frees up sales reps to sell, rather than chase payments
- It may improve customer relations since sales reps are not seen as the "bad guys" when it comes to collections
The cons of AR teams being responsible for overdue receivables
There are also a few potential drawbacks to having the AR team handle collections:
- They may not be as effective at collections as sales reps since they don't have the same relationship with the customer
- It may create tension between the sales and AR teams since the former may feel like they're being "babysat"
- It could create tension between the sales and AR teams if AR is constantly having to chase down payments from customers that were sold to by sales
Does it have to be one or the other
So far, we've looked at both of these possibilities in a vacuum. But what if there was a way to have both teams work together to get the money that's owed?
Both sets of teams have different strengths when it comes to collections.
Sales reps have closer relationships with customers, but they may not be as effective at collections as sales reps since they don't have the same relationship with the customer.
While credit departments/AR may not have the same relationships, they may be more effective at collections because it's their job.
So why not combine the two?
Sales reps can provide credit departments/AR with the contact information they need to get in touch with customers. They can also pass along any relevant information about the customer that may be helpful in collections.
And credit departments/AR can provide sales reps with guidance on how to approach customers about overdue receivables.
There are a few ways to do this:
Have AR send out monthly statements to customers and include a list of who their sales rep is. This puts some responsibility on the customer to know who they need to contact, but it also makes it clear to the sales rep that they are responsible for following up.
Another option is to have AR send a weekly list of customers with overdue receivables to the sales reps. This puts the responsibility squarely on the sales reps to follow up, but it also gives them the information they need to do so.
The best option is probably a combination of both monthly statements and weekly lists. This way, both parties are aware of their responsibility and have the information they need to fulfil it.
Joint responsibility best practices
To help ensure that your organization’s receivables are paid in a timely manner, it’s important to have clear policies and procedures in place. Here are a few best practices to follow:
- Make sure everyone understands their role and responsibility in the process.
- Define what “overdue” means and when collections will begin.
- Communicate with customers early and often about their account status.
- Use a customer relationship management (CRM) system to track contact information and communication history.
- Consider offering incentives to teams for facilitating timely payments.
- Keep communication lines open between sales reps and AR.
- Encourage a team mentality when it comes to collections.
- Consider using technology to automate reminders and follow-ups.
How Chaser can help both Sales and AR teams
Effective automation and communication are crucial for both sales and AR teams when it comes to collections. Sales reps need to be kept in the loop so they can follow up with customers, and AR needs to have visibility into which accounts are at risk of going overdue.
Chaser is the perfect solution for keeping everyone on the same page. With our platform, you can automate collections reminders and follow-ups, meaning that sales reps can focus on selling and AR can focus on recovering payments.
Our Payment Portals feature also allows customers to log in and view their invoices, making it easy for them to stay on top of their payments.
With our credit checking tools, you can also assess a customer's creditworthiness before extending terms. This way, you can avoid sales offering payment terms to high-risk customers and reduce the number of overdue invoices.
With so many options available, it can be tough to decide who should be responsible for collections.
What do you think? Is it time to reassess your process and give sales reps a shot at being the primary contact for overdue receivables?
We’d love to hear your thoughts in the comments at marketing@chaser.io.
