Does managing customer accounts receivable impact customer relationships, and sales performance? An empirical investigation
Introduction
“The receivables asset is often called the company's garbage bin. This is because the asset receivables reflect the quality of the entire operation in the revenue cycle. If a mistake is made in placing an order, delivering it, invoicing it, taking payment by the customer or if the customer is dissatisfied with the product or service, it may show itself as past due or short payment in the accounts receivable ledger”- (Salek, 2005).
There is a popular belief in sales management that a sale is not a sale until the payment is received; it is a gift, until then. In the world of sales, products and services are regularly sold and delivered to customers under an explicit understanding that payments would be rendered in compliance with the negotiated conditions of the sale. The critical challenge in managing the credit risk from a firm's perspective is to balance the necessity for credit sales and the benefits generated from the sales against the potential risk of offering credit to customers. Most often, when firms decide on credit policies for their customers, the credit limits are estimated based on the cumulative liability that the firm can undertake for a specific client, often referred to as a ‘line in the sand’, above which, risks cannot be accepted (Salek, 2005). If customer accounts receivables are not managed well, the customer payments may reduce or dry up, which may adversely influence the cash flows of the supplier firm. The salespersons thus need to develop the ‘collection skills’ required to handle such situations, which may include the knowledge of company accounting policies, account monitoring and management, exemption and modification handling, record collection, and, most importantly, the ability to establish a productive working relationship with clients. For most firms, it's salesperson has the closest relationship with the customer, which makes them the appropriate individual to manage credit on the firm's behalf. From the customer's perspective also, it makes it more difficult for customers to defer payments, as most often, they tend to have a ‘personal connect’ with the firm's salesperson (Schauffer, 2002).
The role of credit sales, that generates account receivables (AR), has been studied in sales literature, albeit under different facets. The literature shows that facets such as the credit rating/score (Abdou and Pointon, 2011; Kiesel and Spohnholtz, 2017; Šušteršič et al., 2009); credit risk assessment (Crook et al., 2007; Papouskova and Hajek, 2019); and/or credit policy (Ng, C. K., Smith and Smith, 1999; Petersen, & Rajan, 1997; Sarkar et al., 2015) are well studied. Although some studies (e.g. Arya et al., 2006; Yao and Deng, 2018) have looked at the role of receivables in regulating the salesperson incentive, in the sales literature, there is no established linkage between AR and salesperson's relationship orientation and/or salesperson's performance. We argue in this article that this void in literature is an important one to fill since this relationship does merit careful consideration, given that customer defaults in payment may lead to several problems for the firms, not only impacting the revenue cycle, but also the firm-customer relationships. This further adversely impacts the performance, and motivation of the salesforce, thus reducing customer satisfaction and the firm's service commitments.
The role of salesperson's customer orientation as an important antecedent has already been established in sales literature (Habel et al., 2019; Jobber and Lancaster, 2006; Saxe and Weitz, 1982; Schwepker and Good, 2004). We argue in this study that both the salesperson's customer orientation and AR directly impact customer-related performance, while there is also a mediating mechanism of these antecedents vis-à - vis relationship orientation. Both direct, as well as indirect mechanisms, work synchronously, and the importance of either of these cannot be ignored. Extant literature has ample evidence to show the customer orientation of a salesperson positively impacts the performance of a salesperson (Pettijohn et al., 2007; Saxe and Weitz, 1982; Terho et al., 2015), while also increasing customer satisfaction (Goff et al., 1997; Baber et al., 2020). Besides, a salesperson's customer orientation is considered to be the building block of a strong relationship orientation (Hansen et al., 2016; Williams and Attaway, 1996), which plays a key role in account receivable (AR) management by the salesforce, reducing significantly thereby the credit risk. In this study, we aim to understand salesperson's account receivables from a different perspective. We explore the role of better account receivable management on relationship building with a customer, and resultantly an improved customer-related performance. This aspect hasn't been studied earlier. We would also like to study how customer orientation impacts relationship building and customer-related performance.
The rest of the article is structured as follows. The next section gives an overview of important constructs in the study, followed by a theoretical background and development of hypothesis for the conceptual model (See Fig. 1). The methodology and findings are presented subsequently in the next two sections. Thereafter, we present sections on discussion, implications, and limitations of the study. The article ends by offering a few conclusions.
Section snippets
Account receivable
Borrowing and lending practices have quite a long history related to human behavior (Thomas et al., 2002). Anderson (2007) recommended the term ‘credit’ signifies ‘purchase now, pay later’. It originates from the Latin word ‘credo,’ meaning ‘I accept as true’ or ‘I have faith in’. A supplier's accounts receivable refers to the money that buyers have promised to pay for goods and services (van der Vliet et al., 2015). Firms normally sell merchandise, using credit instead of prompt cash payments.
Theoretical background and hypotheses development
Salek (2005) discussed the relationship between accounts receivable by salespersons with their performance and suggests that the performance of the receivable's asset is a customer service barometer. The key challenge in controlling credit risk is to sustain the requirement for credit transactions, and the profits from such transactions are extended to a customer against the perceived credit risk. Over time, with customer experience, companies may offer to sell lower amounts on open credit to
Sample selection and data collection
We collected data using a self-administered questionnaire which was administrated to sales executives who participated in executive education at the Indian Institute of Management Calcutta in Kolkata, India. The convenience sampling method was adopted. The questionnaire was split into two sections. The first section was related to items measuring constructs drawn from the extant literature. The second section of the questionnaire consisted of questions related to the demographic details of the
Sample characteristics
In our sample of 224 respondents, 94% were male, representative of the salesforce of several Indian firms. 40% were undergraduates, while the remaining had graduate degrees. The work experience of the respondents varied across both products and service industries, while their sales experience was in the range of 1–10 years, with a median of 5 years.
Assessment of the measurement model
The study focused on the reliability of the items, as well as to establish convergent validity of the reflective constructs, as determined by their
Discussion
Our study highlights several important findings pertaining to the management of credit policy by the salesforce, and how to account receivable management by the salesforce results in better customer-related performance, and strengthens the relationship orientation with customers. The findings also suggest that by using a customer-orientated approach, the salesforce can develop strong bondage with the customer, which may further improve customer-related performance by the salespeople.
This study
Declaration of competing interest
The authors reported no potential conflict of interest.
Ramendra Pratap Singh is currently working as Assistant Professor, in Department of Marketing & Strategy at IBS Hyderabad. He completed his PhD (Marketing), and MBA from National Institute of Technology, Durgapur. His research interest includes, Celebrity endorsement, Sensory marketing, and Sales Management. . His research has been presented in various international conferences, and have published in peer reviewed international journals like Journal of Promotion Management, IIMB Management
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Cited by (0)
Ramendra Pratap Singh is currently working as Assistant Professor, in Department of Marketing & Strategy at IBS Hyderabad. He completed his PhD (Marketing), and MBA from National Institute of Technology, Durgapur. His research interest includes, Celebrity endorsement, Sensory marketing, and Sales Management. . His research has been presented in various international conferences, and have published in peer reviewed international journals like Journal of Promotion Management, IIMB Management Review, and Global Business Review.
Ramendra Singh is currently working as Associate Professor of Marketing at IIM Calcutta. He completed his PhD in marketing from IIM Ahmedabad, MBA from XLRI Jamshedpur, and B.Tech (Mechanical Engg) from IIT-BHU. His research interests include, CSR, Marketing to Bottom of Pyramid, and Sales Management. His research has been presented in leading academic conferences across the world, and have published in reputed top journals including, Journal of Business Ethics, Marketing Theory, Journal of Business Research, International Marketing Review, International Journal of Human Resource Management, and Journal of Information Technology. He has also authored several case studies, and books on marketing. He has previously worked in the industry in various sales and marketing roles for several years.
Prof. Prashant Mishra is presently Professor in the marketing area at IIM Calcutta.