The debate about who calls the tune on customer payment terms rumbles on. Despite the fragile economy, it seems that extending contracted payment terms has become an acceptable means to retain customer loyalty.

In an understandable effort to retain goodwill during challenging revenue times, it still comes as a shock to credit controllers to first learn from the customer that together with the account manager, new payment terms were agreed. It happens all too often during economic crisis or boom. Who calls the tune? Sales or credit?*

Far too often, credit* appear to be purposely prevented from taking part in the process to approve new terms. Why? Is it a case of the account manager kneejerking and responding to the customer’s demands which leads to a decision to not take the time to consult with the office first? Or is it perhaps the misconstrued and false perception of credit as a negative force in a sales driven environment that mistakenly clouds judgement?

Credit does not deserve a negative mantle.

The credit department is right at the heart of the business making sure the lifeblood (money), keeps getting paid on time and pumped through to the business to fund suppliers, payroll and product development. Credit operations is a positive business function fully deserving to be in partnership with sales to grow the business and also to be included in such matters as negotiating payment term extensions.

You might agree with my view that too many customers are using their suppliers to manage their cashflow. It is actually blatant blackmail. In other words it is a case of, “give us the terms we want or we go to another supplier”. Hanging out to get easier terms is part of running a business and quite correct too. So do not be too dismissive of a customer who starts demanding better terms. They are rightly discharging their responsibilities to protect their business and seek ways to better service the company’s debt. Understand this and work with it to your advantage. You might counter their demand with one of your own which your bosses may well be very pleased to support. How about countering their request by telling them that approval is contingent on the service/supply contract being extended for another +5 year term?

This way both parties may reach a mutually beneficial arrangement.

On learning the news, remember that as a credit controller you are representing the business you work at and are required to remain calm and professional. When you are calling customers to pay overdue debt, never allow yourself to become confrontational or defensive with your customer when you learn the news about the changed payment terms. Instead remain calm and politely begin to gather the facts from your customer related to why and what occured to make it necessary for them to need ammended payment terms.

Here is a list (can be expanded on), of some of the essential facts you may need when you brief your credit manager:

1. Customer name, address and history with your business.
2. Exposure report, aged debt profile with value being chased & how made up. ie: from which aged bucket(s) it is derived.
3. Contracted payment terms (provide copy of active contract)
4. Account manager details and contact at customer’s office who asked for, negotiated and agreed new terms.
5. Precise details of new terms. Is new arrangement documented and signed?
6. Date new arrangement agreed.
7. Temporary or permanent arrangement?
8. Who else from your business did the account manager include in the discussion with the customer?

Do not ask your customer why you or risk were not consulted. This is an internal issue which needs investigating and resolving. You need to question the account manager too and confirm the facts relayed to you by the customer.

The steps to take may include:

• Alerting your team leader or manager immediately to adjust cash targets if appropriate.
• Constructing a solution which you can take to your manager for approval and to propose to sales
• Engaging the customer to advise them that original contractual terms are still in force and will be applied
• Make the solution too compelling for sales and your customer to refuse.
• Allowing for flexibility in the solution and always involving sales in the discussions with the customer.

I do not advocate that you merely accept the new arrangement. You should challenge it. Saying or doing nothing is the worst message to send out to the market. You should take immediate steps to try to bring the customer back to existing contracted terms until such time as the change is officially sanctioned. Remember to tell your customer that reserve the right to enforce the Late Payment of Commercial Debts (Interest) Act 1998. Be mindful of the fact that being in business makes it logical for customers to try it on with you when viewed against the punitive fees our banks raise againt overdraft and financing arrangements.

*includes risk management

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