“No company is in business to not grow,” says Bill James, Director, Enterprise Sales for Creditsafe. “They all want to grow. A lot of times, that means changing their growth objectives and sales targets. Sometimes they’ll be more aggressive, looking to hit high numbers through lots more new deals. Other times, they’ll scale back based on factors like economic conditions and global geopolitical risk.”
When sales goals change, so will your company’s risk tolerance.
To understand the impact sales goals have on your company’s risk tolerance, you need to look at the relationship between sales and finance teams.
Risk tolerance is the level of credit exposure your business is willing to take on before the likelihood of late payments or bad debt starts to outweigh the potential reward.
When companies chase big growth, sales targets can push risk tolerance way higher than usual. Deals that would have raised eyebrows before could get the green light.
That can be a good thing for the company, but it’s important to remember that revenue isn’t always more exciting than risk.
When risk tolerance increases, it’s far from a free-for-all. Sure, the business is looking for big numbers at the end of the month, but those big numbers only count for something when they actually come to fruition.
Let’s say, for example, the sales team has a potential deal that would bring the business much closer to those lofty sales goals. The company’s credit seems to check out, but they have a high Days Beyond Terms (DBT) – much higher than industry standards. Under previous credit policies, it’s likely that finance would have denied this potential deal. But if you’re looking for new revenue, it could be worth digging deeper.
Maybe the business does have a high DBT, but it’s consistent month-to-month. Shouldering that risk might seem more reasonable if you’re more confident that the payment will come, albeit later than contracted. On the other hand, if you notice that the company’s DBT is fluctuating sharply month-to-month, it could be more of a red flag. Those fluctuations are often a sign of a company struggling with cash flow issues – a contract with that company could be more likely to become bad debt for your business.
Integrating credit data into your CRM or sales pipeline tracking system is an excellent way to make sure decisions are being made as carefully as they need to be. Look for a credit risk API (a tool that connects data into your existing systems) that’s easy to install and use across teams – that way, everyone is on the same page.
Sometimes, it’s not about trying to grow faster than anybody else: it’s about weathering the storm. When external factors like a volatile economy, global tensions, or even things like changing public opinions put your company at risk, the goal might just be to survive the next year unscathed.
Of course, that doesn’t mean everything shuts down – it just means that the business needs to only work with customers who’ll deliver steady, reliable cash flow. And for that to happen, risk tolerance needs to decrease. There’s a time and place for taking bigger swings when it comes to the types of customers you work with (like we just talked about), but it’s probably not when you’re trying to keep things smooth.
When your risk tolerance has decreased, you need to be absolutely sure about the decisions you make. That means:
If the sales team, for example, doesn’t know that the company’s credit policy has changed, they’ll continue business as usual – but, suddenly, they’re getting more deals rejected. Without that clear communication and access to enriched data, they’ll quickly become frustrated.
Automated credit decisioning can be an extremely helpful tool when risk tolerance decreases. When teams need to be extra careful when seeking out, approving and finalizing deals, wires can get crossed easily. Plus, working on deals that won’t be approved takes resources away during a period when no one can afford to waste time. With automated credit decisioning tools, teams can:
In times of change, it's easy for teams and work structures to become disorganized. Here are a few of our top tips to make sure that, no matter what direction your risk tolerance is heading, your business can roll with the punches.
Yesinne Alvarez, Manager of Partnerships and Alliances, Creditsafe
Yesinne Alvarez is Manager of Partnerships and Alliances at Creditsafe and supports the Trade Data Team with deep cross-functional expertise. With extensive experience in Relationship Management, Project Management, and Business Development, Yesinne brings both authority and trust to her role. Her background includes senior roles in recruiting and strategic development for Fortune 100 companies.