UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business ------------------------------ Nguyen Hung Cuong SALESPERSON FAILURE IN SMC TAN TAO LIMITED COMPANY MASTER OF BUSINESS ADMINISTRATION Ho Chi Minh City – Year 2018 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business ------------------------------ Nguyen Hung Cuong SALESPERSON FAILURE IN SMC TAN TAO LIMITED COMPANY MASTER OF BUSINESS ADMINISTRATION SUPERVISOR: TRAN PHUONG THAO Ho Chi Minh City – Year 2018 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com TABLE OF CONTENTS EXECUTIVE SUMMARY .2 Symptoms of the problem .3 Central problem validation .1 Central problem identification .2 Central problem definition .3 The important of the problem .1 Lack of Salesforce training programs .2 Inappropriate criteria for sales performance evaluation .3 Poor skill in debt collection .1 Redesigning KPIs for salesperson .2 Develop training workshops about debt collection process .1 Summary of methodology conducted .2 Summary of financial report .3 Detail of the Cause and Effect Diagram .4 Late – invoice payment survey .5 The structured interview .2 Summary of transcript.6 The unstructured interview. 55 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF FIGURE Figure 1. SMC Tan Tao structure. Customer's payment status of SMC Tan Tao in 2016.
The initial Cause and Effect diagram. The final Cause and Effect diagram. Model of salesperson performance evaluation. KPIs for salesperson of SMC Tan Tao.
Detail of the Cause and Effect diagram. 37 LIST OF TABLE Table 1. Net cash flow from operating activities in recent year. Collection ratios of SMC Tan Tao compared to other competitors in steel industry.
Number of day overdue of customer. Customer’ reasons for late-invoice payment. Percentage of customer’ reason for their late-invoices. Cost estimation for training program.
Statement of balance sheet. Cash flow statement. 36 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com EXECUTIVE SUMMARY In the economy integration nowadays, credit relationships are becoming increasingly complex. The emergence of debt is a natural factor in business operations, which includes both bank credit and commercial credit.
Debt and debt control need to be evaluated from both sides of the stakeholders: the credit provider (the creditor) and the borrower (the borrower). Many businesses are facing high credit risk, in which the risk of bad debt or late-invoice collection is one of the factors that need to be strictly controlled. Particularly at SMC Tan Tao Limited Company, the unusual high of average collection period ratio comparing other competitors in the steel industry, the customer's receivable accounting for a large proportion of total current assets, the inappropriate credit policies contributes to the company result: negative operating cash flow in recent two years. The company has made plans for debt collection and debt management are not effective.
During the time of working in this enterprise, I noticed some problems in the management of receivables from credit and business activities, especially those directly responsible for the recovery of debts: salesperson. Therefore, the businesses management need to have a more accurate overview of the importance of salesperson in collecting debt task and have specific solutions to improve the efficiency of account receivable management. Therefore, the businesses management need to have a more accurate overview of the importance of salesperson in collecting debt task and have specific solutions to improve the efficiency of account receivable management. Therefore, the company leaders need to have a more accurate overview of the importance of salesperson in collecting debt task and have specific solutions to improve the efficiency of account receivable management.
Based on this actual requirements, the "Salesperson failure in SMC Tan Tao Limited Company" is the subject of master thesis graduation, the aim’s thesis will cover following contents: - The analysis of negative net cash flow from operating, high average collection period and late-invoice collection status at SMC Tan Tao through secondary data, survey, and depth interview with customers and others employees. - Identify potential problems and central problem of three symptom in company, based on that content to validate causes of salesperson failure. 1 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com - Based on the analysis of the internal factors, combined with the environmental factors, suggest the proposed solutions and action plan for the causes of salesperson failure. 2 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.1 Company background SMC Tan Tao Limited Company is the company professional in trading and importing various types of steel, metal goods, construction materials, interior design materials and construction equipment of all kinds, mechanical equipment, and frame warehouses, factories with aluminum structures, steel and stainless steel.
SMC Tan Tao have 80 billion authorized capital with 64 employees located at Lot 33, Trung Tam Street, Tan Tao Industrial Zone, Binh Tan District, Ho Chi Minh City. SMC Tan Tao structure 3 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.2 Symptoms of the problem - Negative net cash flow from operating activities Table 1. Net Cash Flow from operating activities in recent year Unit: Million Dong Cash Flow Statement Item 2016 2015 2014 Net Cash Flow from operating activities -18,461 -86,235 -144,155 On SMC Tan Tao’s cash flow statement, the operational cash flow from 2014 to 2016 clearly is negative, this means the company cannot cover operations solely from running the business. Negative operational cash flow also signify a growing company that is hiring personnel, or it could signify a collections problem or poor debt structure.
- High average collection period Table 2. Collection ratios of SMC Tan Tao compared to other competitors in steel industry Item SMC TLH HMC 2016 2016 2016 A/R Turnover Ratio 11.34 This table show the different time period between Ave. Collection and Payment period of SMC Tan Tao (SMC), Tien Len (TLH) and Ho Chi Minh City Metal (HMC) Company in Steel Commercial Industry in Vietnam. As a general rule, the average collection period should not be longer (1 + 1/3) of average payment period.
Comparing ratios of three companies above, there is a significant higher imbalance between two ratios at SMC than the other companies when the time to collect money from customers is nearly 15 days longer than time to pay the suppliers (4 days at TLH and 5 days at HMC). Because the 4 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com payment term of steel exporter is usually fixed, a longer collection period in this case will have negatively affect the short-term debt paying ability of the SMC’s business. - Late-invoice collection The issue of high collection period ratio (or late – invoice payment) has been cited as a major problem facing business, and in the 2016 Debt Management Report of SMC Tan Tao, the unusually high rate of late payment of commercial debt has found when 67% of customers by revenue have invoices that pay later than the payment term. The below chart will show average number of days overdue in 2016: Customer's payment status of SMC TT in 2016 Timely Payment Timely Payment 4% 33% 4 - 10 Days Overdue 17% 11 - 20 Days Overdue 29% 21 - 40 Days Overdue 17% Longer than 40 Days Overdue Figure 2.
Customer's payment status of SMC TT in 2016 2.1 Situation analysis To determine whether or not average collection period (Table 2) results are good, simply compare average against the credit terms SMC Tan Tao offer their clients. The company allows their 71 / 108 client credit terms less than 15 days (account for 72.40% of sales revenue), but the average collection period is 31.03 (Table 2) days, which is troublesome. The below table will show detail of average number of days overdue in 2016 5 LUAN VAN CHAT LUONG download : add luanvanchat@agmail. Number of day overdue of customer Unit: Number of customer In according to the information provided by planning department, only 33% of SMC TT’s customer have timely payment with their payable account.
This ratio, is significant higher than the average industry ratio, although the day of overdue is the same, usually less than 3 to 4 weeks. According to Atradius Survey Reveals state that (7) nearly 40% of the value of B2B invoices in Western Europe paid late. Overdue invoices paid on average within three weeks of due date. 1 in 4 respondents paid their suppliers late due to B2B customer's late payment.
Furthermore, we conducted the survey and sent to all customers who have late payment to find out the reasons which resulted into the symptom “Late invoice collection”. Finally, we found out and summarized three main reasons that customer usually argued as following: 6 LUAN VAN CHAT LUONG download : add luanvanchat@agmail. Customer’ reasons for late-invoice payment Number of Revenue Overdue Clients Quantity Customer Reason (MT) Feedbacks Group 1: 4 - 10 19 26.63% 19 They have difficulty in tracking their payables Days Overdue They have other critical suppliers.56% 18 They are in financial difficulty. (10 clients) Days Overdue They want to pay in bulk (2 clients) Group 3: 21 - 40 They have other critical suppliers.57% 12 Days Overdue They are in financial difficulty.24% 4 They are in financial difficulty.
Days Overdue Total 72 27,527 In this table, the sales figure of customer have overdue invoice is 27.527MT accounting for 62.7% of total sales in SMC TT. So those who found late payment to be the greatest problem impact on a businesses’ turnover or cash flow. Not only because late-payment by buyers costs a business have time and money in respected to pursuing collection of debts, but also because bad debt reserves represent money that is unavailable for use in growing the business. Howorth (1) state that the issue of late payment of commercial debt has been cited as a major problem facing small business and has precipitated much political debate (p.1) 7 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.
Percentage of customer’ reason for their late-invoices Revenue 1.88% Customers have difficulty 14.63% 4028 in tracking their payables 50.68% Customers are in financial difficulty 50.68% 13951 Customers have other Customers have difficulty in tracking their payables 32.88% 9050 critical suppliers Customers are in financial difficulty Customers want to pay in Customers have other critical suppliers 1.81% 498 bulk Customers want to pay in bulk Total 100.00% 27527 The chart show reasons for late payment base on revenue in 2016, customer’ excuses will continuously explore by asking them more detail including: - Customers have difficulty in tracking their payables This is some customer’s excuses in this case: Invoice is late or missing( 10 customers ) Invoice dispute — after contract agreed ( 5 customers ) Invoice dispute — with no contract in place ( 4 customers ) - Customers are in financial difficulty This is the most popular answer (56.67%) when conducting the survey for the other groups, they tell their business may be going through tough times and they really are unable to pay you back on time. The excuses for this can be anything: they may find they are unable to sustain the level of borrowing they have built up, they haven’t yet received the payment from their clients or the problems may have come about because of some unforeseen event… - Customers have other critical suppliers This answer was discovered by the salesman’s experience when they communicate personally with their customer.67% of customer’ feedbacks have the same opinion that SMC Tan Tao may not be ranked at the top of their payment priority list. 8 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com The reason behind this case is SMC Tan Tao have non-stringent credit criteria. Some suppliers can claim interest and debt recovery costs if customer is late for paying goods, the others even have the commission or annual awards for customer who make the payment on time.