Identifying Internal Customers and Measuring

Their Satisfaction
Satisfying customers could be described as a company's ability to generate genuine teamwork
among all departments in the organization: sales, marketing, credit and receivables,
manufacturing, distribution, packing and shipping, quality, production planning, etc.; and to
instill in every individual the constant awareness that customer service is everyone's business.

This description emphasizes the importance of customer service as an organizational

responsibility. However, too often, a single department in a vertically structured organization is
held accountable for apparent customer service failures that, for the most part, originate outside
that department's responsibility and are beyond its control.

Deductions and disputes are prime examples of costly process problems within a company that
could often be avoided or at least, the resolution could be hastened, through better customer
service or communication.

Consider the following example in a vertically structured organization:

 Sales requests a merchandise return authorization for a customer.

 Returns administration or customer service writes the authorization.
 The receiving area accepts the goods.
 The warehouse returns them to stock.
 Inventory management updates records to reflect their return.
 Returns administration or customer service determines at what price the goods were
actually sold.
 Accounting adjusts commissions, and so on.

Yet, no single department or individual is in charge of handling the return process.

 For some of the departments involved, returns are a low priority and a distraction.
 Furthermore, the company has paid sales commissions on unsold goods.
 Worse, customers often do not get the credit they expect, and they become angry, which
effectively undoes all of the sales and marketing efforts.
 Often there is a delay in payment of their bills, and they pay what they think they owe,
after deducting their value of the return.
 This throws your accounts receivable department into turmoil, because the customer's
check doesn't match the invoice and a dispute or chargeback is created.
 Then, the credit department or claims and adjustment people are left to clean up the mess.

Many organizations are finding that teams are a way to improve communication and service
customers more effectively. Needless to say, teamwork doesn't just happen, because people want
it to. Usually management translates a mandate into a system in which all participants have

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specific responsibilities to perform and standards to meet - responsibilities designed to generate
the desired levels of service at the least cost.

Quality customer service is the ability to create a climate of confidence, credibility and
satisfaction for all parties in the "chain" from product concept and design through manufacturing
and distribution through payment or settlement. Along the chain, there is a continuous
opportunity for the functional areas within an organization to improve.

A key premise in customer satisfaction is understanding the needs and meeting, or exceeding, the
expectations of customers. Furthermore, this is done while optimally using resources. While
most companies have developed strategies to improve quality and external customer service,
internal customer satisfaction is a much neglected component of quality improvement. To this
end, it is important to emphasize that total customer satisfaction can be attained only if all
employees, devoted to external customer satisfaction, can work together and assist each other to
achieve the common objective. In this case, each person must improve what is around them and
look for ways to satisfy the requirements of others in the organization efficiently. This requires a
climate that encourages and supports teamwork in addition to the promotion of a general ethic of
continuous improvement. The basis of this stems from the fact that there cannot be total
customer service unless all employees are supporting each other and working together toward
common goals. In short, total customer service means meeting the needs and expectations of
both internal and external customers.

Introduction
The many responsibilities of the credit, collection, and accounts receivable functions require it to
interact with both external as well as internal customers. Consequently, it is extremely important
for the areas of credit, collection, and accounts receivable to have a good understanding of the
needs and expectations of both types of customers in order to assist the overall organization in
achieving good customer service. In this section, the focus is on internal customers. A quality
improvement process to better serve internal customers is depicted in Exhibit 1.

Identifying Internal Customers of the Credit Department

Interrelated functional units along the value chain form business organizations. The relationships
among these functional units vary from one organization to another, but are usually well defined
in organizational charts. These interrelationships, in turn, create dependence among the
functional units. In the context of customer service, the interrelationships among functional units
are viewed as processes. The roles performed by a functional group along the value chain for
others, can be regarded as "outputs" of the former. The functional group receiving the output is
considered the "internal customer."

To better serve internal customers, the functional groups providing outputs must first identify
their internal customers, their corporate needs, and their expectations. Typically, internal
customers for the credit function include chief financial officers, controllers, sales and customer
service personnel, and treasury personnel. The organizational roles of the credit department to
these internal customers are discussed below.

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Self-Evaluation of Organization Roles
The roles performed by the credit function can be broadly classified into five categories:

1. credit risk management

2. credit risk reporting and control
3. collections
4. cash application and
5. discrepancy resolution.

A self-evaluation effort involves critical examination of how these roles are performed with the
resources devoted to the execution of these functions. Your examination may start from the
broad categories and be refined as required. Examples of the finer tasks involved in each of the
broader categories may include the following:

Credit Risk Management

 assess credit risk of prospective customers

 evaluate credit risk of marginal accounts
 update analysis for existing customers
 approve credit sales
 set credit lines
 approve cash discounts

Credit Risk Reporting and Control

 report and advise on receivable status

 negotiate secured instruments
 manage risk/insurance

Collections

 current receivables management

 past dues management
 lockbox management
 bad-debt management

Cash Application

 system management and update

 timely application
 accurate application

Discrepancy Resolution

 address cash discount issues

 resolve customer deductions

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  resolve chronic delinquency problems (e.g., restructure past dues)

To achieve good customer service, it is necessary for the credit, collection and accounts
receivable functions to periodically, critically review the significance of each task performed in
relation to the total corporate objective and the resources available. For example, how many
resources should be devoted to the credit investigation of a long-time customer with sound
financial background versus a new customer with little financial information available? How
much additional effort should be spent on the collection of a certain past due versus writing it off
as bad debt? It is clear that a good self-evaluation effort should yield much insight to the
corporation's requirements of the department. This should also allow you to more effectively
plan and use the limited resources available.

Identifying & Measuring Needs and Expectations of Internal Customers

While the credit, collection and accounts receivable operation can certainly address some of the
issues mentioned above based on the experience and expertise of its management, it is perhaps
more appropriate for the credit, collection and accounts receivable functions to be discussed with
the internal customers involved. In this regard, management can obtain a better understanding of
the needs and requirements of the internal customers and evaluate the effort required to satisfy
them in relation to common corporate goals. This is an important step towards the alignment of
the credit operation's effort with that of each internal customer's requirements.

Clearly, there is no reason to focus on issues that are not of major concern to the internal
customer or to take actions which are warranted in the context of the overall corporate goals. For
instance, the focus of the credit department's resources may be to update and assess the financial
condition of existing accounts, while the internal customer may perceive it to be more important
to get timely information on new accounts. It may be necessary for the credit operation to re-
evaluate the relative importance of the two functions and consider devoting more resources to
new account assessment. This should be done with the support of the internal customer. If, in the
final analysis, it is decided that the up-keep of marginal accounts is more important toward the
corporate goal, credit can then maintain the status quo with an understanding from the internal
customer and not a misunderstanding that the department is devoting resources to a less
important task.

To understand the needs and expectations of internal customers, a number of tools can be
employed by the credit, collection and accounts receivable functions. These include the use of
surveys, the forming of focus groups, and the scheduling of one-on-one meetings between
managers in the respective departments and internal customers on a regular basis. Each of these
strategies has its merits.

The tool that is least demanding and most comprehensive is the use of a customer survey. This is
especially true when it is a priority for internal customer service to not hurt your external
customer. This may sometimes occur while a company, or functional department, is learning a
new way to operate and frequent group meetings can be disruptive to the work schedules of
internal customers. The use of a customer survey is most consistent with a quality customer
service program. One disadvantage however, is the loss of personal contact with internal
customers that can yield significant insights. A compromise solution to this problem is to

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supplement the survey with occasional periodic review with internal customers. In addition, it is
advisable to send the survey results to be reviewed by internal customers to them ahead of time.
By keeping them informed of such results, each internal customer can compare how their
perception of the credit, collection and accounts receivable operation is similar or different from
other internal customers and that of their functions. This may lead to the clarification of prior
misunderstandings between the internal customers and your credit, collection and A/R operation.
Moreover, the knowledge obtained by internal customers from the survey results over a period of
time allows them to clearly observe your operation's improvement and demonstrates your
commitment to excellence.

The Internal Customer's Survey

It is desirable for the credit, collection and accounts receivable department to develop a process
to better meet the needs and expectations of its internal customers. The above discussion
suggests the introduction of a process to survey the needs and expectations of these internal
customers and to measure the current level of satisfaction. This information, in conjunction with
an evaluation of the resources available and the way internal customer's needs and expectations
are addressed, are important inputs to devising a plan for future improvement.

Survey evaluations of the credit, collection and accounts receivable function can focus on three
performance characteristics:

 technical expertise
 organization role and
 intangible know-how

The evaluation of technical expertise can start from the list previously suggested. The list is by
no means exhaustive and your individual credit, collection and accounts receivable operation
should adopt and refine it according to its needs.

The evaluation of organizational performance centers on how much the operation plays an active
part in supporting external customer satisfaction and being an active player in the overall
corporate environment. Finally, the credit, collection and accounts receivable function is also
expected to perform with professionalism and bring in superior industry and business knowledge
to the organization. When the internal customer expects these intangible qualities of the credit
department, it is the responsibility of the credit, collection and accounts receivable department to
address these issues. It is important to note that customer satisfaction is not achieved through the
provision of products or services alone, but through meeting or exceeding the expectations of
customers without employing excessive resources.

While an internal customer survey can include as many of the measures of performance
discussed above as possible, the most effective survey tool is one that does not burden potential
participants with hundreds of items. The ideal tool is a one-page survey form. While there is no
universally accepted list of performance measures, the credit, collection and accounts receivable
operation can develop a one-page survey with effective measures of performance over time, as
they learn more about their organizational role and the requirements and needs of internal
customers.

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While this survey (Exhibit 2) is a start, your survey may include the performance measures of
different tasks and then refined over time. In order to be able to collect the most useful
information, you should put in place a built-in mechanism to solicit input from the internal
customer. To accomplish this, it is necessary to provide opportunities for internal customers to
raise issues that are perceived to be important by them, but may be overlooked by you in the
initial survey. Hence, the survey form should ask internal customers questions such as, "What
can the department do to serve you better?" and ask for comments on low scoring items. An even
better approach would be to arrange a follow up meeting to discuss the issues. Gradually, as the
roles of credit, collection and accounts receivable operations can be better identified by both the
internal customer and you, items on the survey tool can be updated accordingly.

Sample Customer Survey

A sample survey form developed by the Research Committee of the Credit Research Foundation
is displayed in Exhibit 2. A special feature of this form is that it not only specifies the level of
service performed by the credit, collection and accounts receivable functions actually received
by internal customers, but it also requests internal customers to specify the required performance
level of the activities, given the resources available to the credit, collection and accounts
receivable group.

This approach is consistent with the spirit of excellent customer service where excessive
activities that do not add value should be eliminated. In addition, any differences between the
actual and required level of services reported should be addressed between the credit, collection
and accounts receivable group and the internal customers. While the sample form does not
represent an exhaustive list of performance measures, it includes most essential measures for the
credit, collection and accounts receivable functions. Credit departments planning to use the form
should adapt it according to their circumstances.

After obtaining a better understanding of the needs and expectations of internal customers
through survey results, the credit department should be equipped to focus on the performance
areas that need to be improved to better satisfy the internal customer and achieve superior
customer service. It is important to emphasize that the survey is only a tool to assist the credit,
collection and accounts receivable operation to identify internal customer's requirements. Quality
customer service cannot be obtained unless corrective actions are taken.

Exhibit 1

Internal Customer Satisfaction Process

1. Identify internal customers.

2. Evaluate the role of the credit, collection and accounts receivables administration (as a
functional group) within the organization (self evaluation).

3. Determine actual performance level through survey of internal customers.

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4. Determine the level of satisfaction required within the organization through survey of
internal customers.

5. Measure satisfaction level of internal customer with respect to needs and expectations.

6. Identify improvement opportunities in work process required.

7. Determine process potential and develop action plans for better service.

8. Monitor, control and update