Clients That Can Ruin You

08th March 2018

As a company owner, you’ve probably interviewed a lot of job candidates over the years.

Before they ever meet you, you, your team or your recruitment company has probably done a lot of research about who they are and what they’re about.

You’ve looked at their CV. Nowadays, you’ve looked at their LinkedIn profile and possibly even at their wider social media presence.

During the interview, you grill them about their experience and qualifications. And before hiring them, you follow up their referees, to make sure that their claims are valid and that previous employers think highly of them.

We put a lot of work into hiring that single staff member, because we recognise that getting this wrong will be a blow to our organisation.

Why, then, do we tend to do so little due diligence, by comparison, on the companies that hire us to work for them?

The risk there is not just equally big – it is far, far bigger.

As we’ve been discussing over the past few weeks, in the wake of Carillion, the wrong clients can quite literally ruin you.

Bringing a new client on board can be exhilarating – especially if they have a good name – but when, six months later, they begin to fall behind on their payments, and you realise that you’re going to find it difficult to pay your own people that month…..

When it suddenly dawns on you that “90 day payment” terms means that you don’t see a penny from them for the first three months, and that meanwhile you have your own bills to pay….

When it turns out that they are absolutely insistent on a level of service which your fee doesn’t possibly cover, and you’re actually making a big fat loss on that “prestigious” new client…

You may rue the day you brought them on board. Because instead of helping you grow, they are a clear and present danger to your very existence.

Now, if you’ve been reading my recent articles, you will have heard me say how important it is to understand who you’re really working for if you’re part of a supply chain, and to always have a healthy sense of skepticism if a client or contract seems too good to be true.

But if you really want to protect your business, there are certain additional steps you should take every time you take on a new client – no exceptions.

Here’s my basic list.

• Perform a credit check. Are they good for the money they’re saying they’re going to pay you? Actually, you should do this annually for all existing customers as well. Things change!

• Check their payment profile — how will they pay, how long will it take. Again, if you’ve been working with a company for a while, stay alert for any changes.

• Study their size and structure. How big are they? A company that is too large might have payment terms which are disadvantageous to you. A company that’s too small might have disadvantages as well.

• T&C. Make sure you’re 100% comfortable with the terms and conditions you’re working under. Legally speaking, the T&C which will apply are the last ones that were on the table at the point of sale – make sure these are yours, not theirs.

• How dependent will you be on them? If they’re going to account for a very large % of your turnover, you need to think even more carefully about whether they’re right for you. Although a big bump in your turnover sounds great, you don’t want to be too heavily dependent on any one company.

The bottom line is: Get to know your clients, when you take them on and ever after.

Believe me, they’re doing due diligence on you.

Grown-up companies – those which operate in a professional and systematic manner and take their financial management seriously -- do their due diligence on their customers, too.

If you want to reach that stage, and move well beyond £1 million or £2 million, you have to operate the same way. Your financial future depends on it.

That’s what we do for our clients. For more information just get in touch.

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