Know Your Best (and not so best) Customers

It’s month-end, and you have a stack of bills coming due–both personal and business. So, in somewhat of a panic, you turn to IOUs in an attempt to collect payments from clients–and you actually achieve some success doing so. Having received a few payments (finally), you breathe a sigh of relief, swearing that things will be better next time. But, 30 days later, it happens all over again.

If that scenario sounds familiar, then you’re probably trapped in a continuous and unforgiving cycle of being flush then being broke. I’ve been there, and can tell you that breaking free of it will take some work and a little bit of courage. As you read along, keep the following rule of thumb in mind: It’s better to have no business than bad business.

Cleaning House

Let’s start by managing the things within your control.

  • Track where your money is going and cut expenses where you can
  • Consider reducing time worked by employees or contractors, and try doing more tasks yourself.
  • Research other businesses within your industry to ensure your pricing is competitive but allows for profit. Undercutting your competitors on price might work in the near-term, but it is not always a sound long-term strategy.
  • Contact those holding IOUs to arrange partial payments.

If you’ve done these things and still find yourself struggling, then, and this is where the “courage” comes in, it’s time to monitor and evaluate customer credit history.

Measuring Client Performance

As with traditional lenders, you need to periodically review customer relationships by determining who’s making timely payments and who’s consistently slow. Doing so will help you to determine how you should prioritize projects as well as which clients are probably better off doing business elsewhere. Factors you want to measure include:

  • How much time it takes a client to submit payment
  • How often does a client’s invoice become overdue
  • How often do you need to remind a client that payment is due
  • How valuable is the client, overall

Fortunately, with our invoicing platform, all of this can be done for you. Over time, as you invoice clients, invoicing, collection and payment history are compiled into a Client Performance Report. This report will give you a snapshot of your best clients (and those on the other end).

Based on the client history shown here, service requests from WH IT Services and Fourth Coffee, Inc. would be more deserving of top priority.

Armed with this information, you can more wisely prioritize tasks. You’ll know whose projects work on first–those who pay quickly and need fewer nudges–and you’ll feel more confident that you’ll receive payment shortly after completing the project. You will also be on firmer ground if you refuse to give in to slower clients who what everything NOW, NOW, NOW, but will leave you waiting weeks for payment.

Now, it’s always best to work with every client as much as possible. At some point, everyone has trouble meeting obligations, so it’s fine to exhibit some patience. But, despite your best efforts, there may be times when it’s best to part ways. Yes, this may result in reduced clientele, but that will just encourage you to step up your networking and marketing efforts and acquire new and better business.

 


 

 

About the Author

Louis Green is the owner and senior programmer at Flare Systems, LLC. Flare Systems specializes in web site and application development and is also the developer behind Flare Invoice—a online invoicing web service. After endless hours behind the computer, Louis can be found running, hiking, grilling and just enjoying the outdoors. Louis also wrote a chapter in The Entrepreneur Within You – Volume 2.

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