How can risk management and sales teams collaborate to mitigate financial risks?

Sales are always a focus area when it comes to risk as false sales might be reported as normal sales and sales targets might make sales teams reckless in not checking creditworthiness of customers.

Salespeople need to be enabled to do their work and meet their goals, but risk and credit teams need to be able to make decisions that do not leave dollars or jeopardize sales wins. The key to this is at the top of the organization and involves empowering both sides with the ability to influence the process. Making sure the team has access to the best available data can optimize the alignment.

"Collaboration between risk management and sales teams is vital for mitigating financial risks. Risk managers can provide insights into potential risks associated with sales activities, while sales teams can offer frontline perspectives. By working together, they can identify, assess, and address risks effectively, ensuring a more secure financial environment for the company."

Communication is critical for effective risk management. Not only must the company’s risk management team be able to effectively communicate risks to the company’s sales team, but the sales team must be able to communicate back with information about potential risks as well. To make this happen, companies need to have clear risk management policies and procedures, they must provide adequate training to their sales teams, and they must emphasize to their sales teams the importance of proactively addressing potential risks before they lead to losses or litigation.

Risk management and sales teams can collaborate effectively to mitigate financial risks by fostering open communication and sharing insights. Sales teams, with their frontline experience, can provide valuable market intelligence to identify potential risks early. Meanwhile, risk management teams can offer expertise in analyzing and mitigating these risks through tailored strategies and financial instruments. Together, they can develop proactive measures to minimize financial losses, protect assets, and seize opportunities, thus enhancing the overall resilience of the organization.

Sales or Business Development teams can give a early heads up to risk management on potential deals they are working on that are likely to be done. This is best done on a periodic basis. It gives ample time for risk management to help assess the market risks in the deal and its impact on the mandated risk limits. For credit risk, this gives them some time to assess potential counterparties or if they are any prepayment needs. However more importantly, is the evaluation of the reward/risk ratio and how to optimise it.

"Collaboration between risk management and sales teams is essential to mitigate financial risks effectively. Sales teams provide insights into market dynamics and customer behavior, while risk management teams assess potential risks. By working together, they can identify potential risks early, implement appropriate risk mitigation strategies, and ensure that sales activities align with risk tolerance levels. This collaboration fosters a proactive approach to managing financial risks, ultimately safeguarding the company's financial health."

Making sure that each team knows the role and responsibilities of the other and their importance in keeping the wheels greased for an organization can be challenging but it is highly impactful when you want a harmonious relationship between the two. Having open communication between the departments that encourages respect and offers the chance for each to learn a bit from the other can go a long way in helping. When one understands the "why" it leads to more empathy for the other's duties and role.

When I was a mid-level manager, I worked with sales teams in the management of financial receivable risk, which I can describe as one of the grayest areas in risk management. I have come to the conclusion that the best way to identify receivables risks from customers and manage this risk by ensuring the sustainability of trade is for the financial risk specialist to understand the customer and the nature of the sale well, and for the sales manager to understand the impact of the decisions he makes on the company's financials. Isn't the new rule of the business world to understand and empathize with the processes and units you touch, while having the best knowledge and experience in your field of expertise and continuing to apply it?

1. Share Market Insights: Sales teams provide frontline insights into market trends and customer behaviors, aiding risk assessment and forecasting. 2. Collaborative Forecasting: Jointly develop sales forecasts considering risk factors, enhancing accuracy and informing financial planning. 3. Customer Credit Risk Assessment: Sales teams assess customer creditworthiness, informing risk management decisions on credit extension and terms. 4. Feedback Loops: Establish feedback mechanisms to relay sales-related risks promptly to risk management for proactive mitigation. 5. Training and Education: Provide sales teams with training on financial risk concepts to enhance their understanding and support risk-aware decision-making.