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 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.


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.

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


  • 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
  • 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 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.

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.
  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.

Exhibit 2

Internal Customer Satisfaction Survey

For The Credit, Collection and Accounts Receivable Function

Rate 1 = high 5 = low


Performance Level

    A. Credit Risk Management

Actual Required
      1. Rate our ability to assess financial condition for
        new accounts
1 2 3 4 5 1 2 3 4 5
        marginal accounts
1 2 3 4 5 1 2 3 4 5
      2. Rate our ability to assess other factors associated with credit risk e.g., economic conditions, competitiveness, market share, etc.
1 2 3 4 5 1 2 3 4 5
      3. Rate our ability to balance credit risk and business interest
1 2 3 4 5 1 2 3 4 5
      4. Rate our ability to assign credit terms appropriate to order size and credit risks
1 2 3 4 5 1 2 3 4 5

    B. Credit Risk Reporting and Control

      5. Rate the content and completeness of our communications on receivables status and financial risks
1 2 3 4 5 1 2 3 4 5
      6. Rate the timeliness of our communications on receivables status and financial risks
1 2 3 4 5 1 2 3 4 5

    C. Collections

      7. Rate the effectiveness of our collection performance
1 2 3 4 5 1 2 3 4 5
      8. Rate our ability to control bad debt expenditure
1 2 3 4 5 1 2 3 4 5

    D. Cash Application

      9. Rate the timeliness of our application of customer remittances
1 2 3 4 5 1 2 3 4 5
      10. Rate the accuracy of our application of customer remittances
1 2 3 4 5 1 2 3 4 5

    E. Discrepancy Resolution

      11. Rate our timeliness in addressing customer cash discount issues
1 2 3 4 5 1 2 3 4 5
      12. Rate our ability in resolving customer deductions
1 2 3 4 5 1 2 3 4 5


      13. Rate the timeliness on our responses to requests for investigation
1 2 3 4 5 1 2 3 4 5
      14. Rate our timeliness and professionalism in decision communication
1 2 3 4 5 1 2 3 4 5
      15. Rate our effort to develop a teamwork relationship with your unit
1 2 3 4 5 1 2 3 4 5
      16. Rate our support to your other business goals
1 2 3 4 5 1 2 3 4 5
      17. Rate our support to the overall organization goal
1 2 3 4 5 1 2 3 4 5


      18. Rate our industry and business knowledge
1 2 3 4 5 1 2 3 4 5
      19. Rate our knowledge of computer technology
1 2 3 4 5 1 2 3 4 5


      20. Rate the cost effectiveness of the credit department
1 2 3 4 5 1 2 3 4 5
      21. Rate the overall performance of the credit department
1 2 3 4 5 1 2 3 4 5

Required level of performance should consider only value-added activities.
Thank you for participating in our Internal Customer Satisfaction initiative and for completing this questionnaire. We will follow up to schedule a meeting to discuss opportunities for improving performance.

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