As a decision maker and leader, do you have to balance the interests of sales as well as finance, or do you simply allow sales to do whatever they believe is necessary to obtain business? Most well run companies set parameters as to what kind of orders sales can take, which are to be passed on and where discussions need to take place first.
One of the problems often is that the parameters for sales are rigid. For example, our minimum margin on new orders must be 25% for all sales under $50,000, and no less than 20% for orders over $500,000. The first potential problem is, is the customer a good credit risk for any amount of sales at any margin rate at all. Accounting should have certain credit policies in place to determine if the client is credit worthy in the first place. This is a simple form of checks and balances that is often ignored. If the client is not credit worthy, the sale can still be made, but not on standard credit terms of say 30 days. They may be required to pay in advance, or put the order on a credit card, or have progress payments, etc.
Another factor may be the company’s ability to finance the cost of the service being provided. Say that this is a labor intensive operation where you pay your employees weekly and don’t receive payment for 60 or 90 days, without a sufficient line of credit or cash reserves you may grow yourself into bankruptcy before you every get your first check. Your finance department should be able to let you know if you have the financial strength to even take this order.
Then we have the issue of what is a fair margin and which orders you need to take to keep the doors opens vs, which are too high to be competitive. If you are trading dollars that might not be a good idea, unless you are trying to break into lucrative account or serving an important client which sales is in better position to assess then accounting or finance. If you are on the other hand charging too high a price you may be opening up the account to your competitors, unless you are providing value added services which saves them money, their quality and service make pricing a moot point, they have a special relationship with the client, there are other factors at work which again sales would know in order to justify a high price, etc. But there is no harm in accounting asking these questions and letting the decision maker or leader decide what is in the company’s best interest.
Being in business is by definition taking risk, but there are sensible and not so sensible risks. Nevertheless, when sales and finance/accounting are both involved in the process there is less of a chance for mistakes or oversights.
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