Crappy clients are a cash flow problem

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.

Bad clients are bad. It doesn’t take a rocket surgeon to know that. But, bad clients aren’t always the ones you’d expect, like the low fee or emotionally draining ones. Your largest and friendliest clients can also be your worst clients from a financial standpoint. These ‘good’ clients may regularly pay late creating cash flow problems or may not be profitable at all. And, because they’re ‘good’ clients on the surface, you won’t feel that they’re a problem in your gut.

Regularly reviewing your client list will give you a different perspective on your cash flow and overall business’s health that can’t be found in basic financial reports or bank balance. And, you may realize that your business isn’t as healthy as you thought it was (even if you’re profitable and your P&L looks good).

Types of problem clients:

Non-payers & late-payers: Anyone that chronically pays late (or not at all) is a problem client, even if they’re your largest client. Late payments and non-payments create cash flow issues that affect your ability to pay bills. And, the longer an invoice sits uncollected, the less likely it is to be paid. Schedule time to have a friendly chat with these clients. Confirm that they received your invoice, ask them to pay it, and firmly explain that in 2021, you’re going to be more strict with your invoice due dates. (Don’t threaten to send them to collections, if you aren’t 100% ready to.)

[Non-payers and late-payers can be found in your Accounts Receiveable report or invoicing dashboard.]

Unprofitable & break-even: Unprofitable clients are unprofitable. You literally lose money every time you do work for them. They need to be replaced. Breakeven clients aren’t as bad (because, at least, you’re breaking even), but they’re using up bandwidth that could be better spent on profitable clients. (If business is slow, consider keeping break-even clients to keep your employee utilization high and help pay their salaries.)

[Unprofitable and break-even clients can be found in your timesheets (eg, how many hours did you spend to earn that flat fee) or client expense reports.]

Complainers & difficult to please: Complainers aren’t inherently bad clients. But, depending on how much they complain, they can be stressful to deal with, require additional admin time to deal with their calls/emails, and swamp you with additional, out of scope work.

[Complainers can be found in your timesheets and communication history reports (eg did they send you 50 emails when everyone else sends 10).]​
​That one client you fucking hate: You know the one. Every time they call, you mumble curses and think about letting them ring through to your voicemail. Put them on your naughty list. No matter how much they pay. You can probably find a new client that pays just as much, but is a pleasure to deal with.
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Note: You don’t have to act on your list and start firing clients right away. It’s just something to be aware of.

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Action Item: Print a list of all your clients and write your naughty list 🎅
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Have a great weekend and stay safe! ​
​Michael Eckstein

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P.S. Consider quarantining your Elf on the Shelf this year.