Conversations to have with your problem clients (and how to fix them)
Hey, I’m Michael Eckstein 👋, and this is ‘Ordinary & Necessary’, a weekly newsletter about the boring business topics that don’t get enough traction on the web, but will help you manage and grow your business. You signed up on my website. If you’d like to unsubscribe, just click the link at the bottom of this email. No harm, no foul, I’d love to have you back sometime.
Knowing who your problem clients are is a good start. But, you shouldn’t let those problems fester until you’re fed up and want to fire those clients. Once you have a list, start working on the issues you’ve found in your client base. Some clients can’t be fixed (like, that one client you can’t stand) and need to be let go. For those, politely explain that you can’t keep working together and offer to refer them to another qualified professional that’s better suited for them.
Other problem clients can be turned into good clients with simple, albeit uncomfortable, conversations. A little time spent discussing your working relationship with them, resetting expectations, and setting a new course can help turn a bad client around and nip any potential future problems in the bud.
Types of problem clients:
Non-payers & late-payers: Non-payers and late-payers are an Accounts Receivable problem and should be approached the same way you would any late outstanding invoice (eg, automated follow-up, friendly phone calls, etc). But, there’s a difference between one late payment and chronic late payments. Chronic late payments are a recurring problem for your cash flow and business. And, you shouldn’t have to plan your cash flow around their lateness (eg, “oh, Tim is always 6 weeks late. It’s okay.”). Aim to correct it and get paid on time.
First, you want to troubleshoot why payment is taking so long.
- Are you sending the invoices to the correct contact person? Your project point person may not be responsible for paying invoices.
- Do they understand how and when to pay? Remove confusing language (eg, net 30) in favor of easier to understand phrasing (due in 7 days). And, add more payments methods like credit card and echeck/ACH/bank transfer.
- Are your invoices confusing or incorrect? Difficult to understand and incorrect invoices aren’t a priority for business owners to pay.
Then, once you know the issue isn’t on your end, discuss future invoices with your client.
- Ask them if everything is alright in their business and personally – If things aren’t going well (especially now during COVID), they may need to dial back on your services or restructure how and when they pay you.
- Review your previously discussed payment terms – Explain how frequently you’ll be sending invoices, late payments fees, etc
- Explain that, in the future, you’ll have to stop work whenever invoices are overdue. And, that a current account is a requirement of working with you.
- Consider requiring payment upfront for clients that really struggle to pay on time. Instead of collecting at the end of the project or month, collect at the beginning.
Unprofitable & break-even: Unprofitable and break-even clients are a profitability problem (shocking, I know) but, they don’t have to be. An unprofitable client can be turned into a profitable client by raising fees or upselling additional services.
How to increase profitability.
- Raise your fees across the board – What was once a healthy, profitable fee 5+ years ago, won’t be worth as much today. Bump your hourly rate up.
- Revisit those botched and lowball quotes and adjust them – Sometimes, you totally botch a quote and need to stand behind it. But, you don’t have to stand by it forever.
- Upsell your other services – Client needs change as they grow and become more comfortable working with you. They may now be interested in a more profitable service that they turned down a few years ago.
That said, if you can’t turn a break-even (or barely unprofitable) client into a profitable one, you might want to continue working with them anyway to keep your employee utilization high. Keeping employee utilization high will keep employees busy; give them additional experience with your business’s software, systems, and processes; and help earn revenue to pay their salaries.
Complainers & difficult to please: There’s different kinds of complainers. Some are rightly complaining about something you messed up. Others, have a different communication style than you do. And then, some just like to complain about everything to everybody that’ll listen. When approaching your complainers and difficult to please clients, you’ll need to make a judgement call about whether you can improve your working relationship or, if you need to cut them loose.
- For clients where you made a mistake, ensure them that it won’t happen again and ask how you could’ve made the correction process smoother. How can you make them feel heard? Would a ticketing system help so clients can submit issues and change orders? Would they have appreciated a faster turnaround time?
- For clients that communicate differently, explain how you communicate. And, I don’t mean this in a couples therapy kinda way. If you don’t respond to client texts or pick up the phone out of working hours, they should know that. If they’ll get a faster answer by calling you, tell them. If it takes you up to 3 business days to answer complex questions over email, let them know.
- For clients that complain about everything, ask if anything is truly wrong and needs to be fixed. If everything is okay and they insist on complaining, explain that you want to best serve all your clients, that they obviously aren’t happy with you, and you’d be happy to refer them elsewhere.
Action Item: Set aside some time to call those non-paying and late-paying clients. (Put it on your calendar!)
Have a great weekend and stay safe!