> A sales rep who negotiates a 30-day payment term instead of a 45-day payment term is cash-wise. The company can get the money sooner and is able to put it to use elsewhere.
I don't understand using a sales rep as the first example.
Don't you just tell the salesperson how their compensation is tied to deals signed, revenue, and the speediness of payments?
Doesn't that formula alone tell you what the behavior will be?
Agreed on the value of educating employees about what's important to the business, but isn't sales an exception, due to convention of how their compensation is structured?
Comp is typically aligned to Revenue rather than payment schedule, unless the rep is involved in the A/R process which is unusual but not unheard of. The incentive comes from deal language standards for which exceptions must be approved by senior leaders for things like delayed payments or other arrangements.
In the above scenario, the more likely situation would be the rep goes to bat internally for a 45-day term so they can close a larger or more favorable deal that management will be incentivized to approve.
I'd say it's more common nowadays, otherwise it's easy to sell tons of stuff with 90 day invoices, take your bonus, and run off 6 months later with massive outstanding AR.
I don't understand using a sales rep as the first example.
Don't you just tell the salesperson how their compensation is tied to deals signed, revenue, and the speediness of payments?
Doesn't that formula alone tell you what the behavior will be?
Agreed on the value of educating employees about what's important to the business, but isn't sales an exception, due to convention of how their compensation is structured?