By Richard Helling
We recently sat down with a client and were going over the financial statements from the previous several years when we noticed something unusual. He had lost clients but had increased profitability. When we asked what he had to done to increase profitability while losing clients he simply replied that he had “let go of some dead weight.” While that is a relatively unusual way to look at clients, it is actually a great business tactic.
His point was that regardless of how much business they bring, not all clients are worth the same. A client that is consistently 30, 60, 90 or more days late paying for the services received is almost always detrimental to your business. The service you provided for that client is money that you have already spent. Workers salaries, supplies, insurance, gas and extra time spent trying to collect a payment is real money out of your pocket that directly affects your bottom line today. Consistently carrying clients that make late payments is essentially a loan. You are loaning out your employees and services for a payment that will come only after you have paid for the expenses of running your business. However, the opposite is also true.
Many businesses offer a discount if the client pays for services in advance. The reason they are willing to offer a discount is because advanced payments on services that will be provided at some point in the future is also essentially a loan. Except this time the loan is working in a direction that actually boosts your bottom line. Payment in advance is money that can be used to pay for bills today. As a business owner, clients that pay for services in advance are incredibly valuable because they are giving your business a loan.
Of course it is not reasonable to expect that all clients should pay in advance just as it is not reasonable to get rid of a good client for one or two late payments. The idea here is that a client that is consistently late with payments is a drag on your business and should be let go. Naturally there are exceptions to every rule and each client should be evaluated individually, but an honest review of a client’s value to your business is vital to the health and overall success of your business. By focusing more of your time and resources on quality clients you can greatly reduce your headaches and you will more than likely add to your bottom line.