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Tinkering with the terms

Dear Thea,

I have a sales rep who is constantly promising customers 60 day terms. It is his signature move. Customer pushes back on pricing or any other issue, he offers to solve it with a terms change. It is killing me. It blows out the customer’s credit line, impacts our lien rights, and just plain doesn’t make sense. What is he thinking? When I challenge him he tells me, “You do your job, I’ll do mine.” It’s a done deal; the customer has the new term. How would you handle it?

— Challenging the terms king

LBM Resources

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Dear Challenging,

It will do you no good to ask said rep what he was thinking. Obviously, he was thinking he will get away with it, and he has, and that you won’t call his bluff by calling the customer and walking back the term, thereby embarrassing your company, customer, and the sales rep. So yep, he is feeling good about this plan.

Why are you, dear Challenged, accepting the “throw down?” When said sales rep throws that reasoning on your doorstep like a Molotov cocktail, do you accept the party favor? Not in my world. Pick up that sack of fun and toss it right back at him.

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You shot your mouth off there, Slick, so you call the customer and let them know you “misspoke.” Still not getting cooperation from your generous sales rep? No problem; we have alternatives. The terms have to be changed on the customer account, and you, my credit managing friend, control that aspect. When you call to let the customer know their account is past due, along with the reflection of terms on their invoices and statements, it will be clear to the customer that something is not right in River City.

When the customer mentions they have extended terms, ask questions. Who offered those terms? What is the reason for the extra time? If there is a legitimate reason, you can resolve the “misunderstanding” and update the account, supporting both customer and sales. If not, let the customer know you will get with their sales rep to clarify, but for now this is the term: The account is past due and I need a payment commitment. You can bet that before you even reach the sales rep, that customer will have already been blowing up his phone.

Embarrassing for you as a company to your customer? Sure. A tough lesson for you and your sales rep? Absolutely. Effective? Depends on the learning curve of the sales rep. Some learn quickly and you move forward working together. Others take longer for that “Comin’ to Jesus” meeting.

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Where does your sales manager factor in this story? Have you spoken to him/her about the situation? Are they engaging with you on the reformation of your freewheeling rep, working with you on educating your mutual co-worker on the pitfalls of terms extension, or do they play blind, deaf, and dumb to the matter?

This is a good time to remind your company leadership that the credit culture of any company is reflected by its worst sales behavior, performance notwithstanding. Sales fuel the business but sales growth puts a strain on cashflow. Cashflow is impacted by the rate cash flows—in and out. Extended terms has an impact. Round and round it goes, and where it stops nobody knows. Well, not true. The bottom line knows, profits know, and eventually the tide goes out along with your money, leaving you exposed. Don’t let your company be caught swimming naked.

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