Posted by Annalisa in This week I had the unenviable task of firing one of my clients. The decision to let this client go was not an easy one, it really goes against the grain of any business, after all we are here to attract clients not to get rid of them. But there are times when you have to make hard decisions which are in the best interest for your business and this week was one of them.
Let me give you a little bit of background. We provide a business to business service, our clients provide us with audio which we transcribe into text and give back to them in the form of a text document. When we sign up a new client, each receives and is required to sign, our terms of service agreement. This does exactly what it says on the box, it defines our terms of service, this is how we work and this is how our business functions. By signing, the client agrees to stick to our terms. Important for every business is cash flow and because of that we have, clearly defined in our terms of service, 7 day terms on our invoices. Why so short? Well remember we are supplying a service, a service which requires real people who are paid a real wage. We don’t ship something from a distributor who we have 30 days plus to pay for goods we have on-sold, we have real people who are paid weekly. Our staff work extremely hard, transcription is a skilled profession. My business works hard to create accurate documents in a very short time frame. Typically if you send us audio, say a 45 minute interview, we will have that audio transcribed and proofread and back to you within 24 hours. We require payment for a fast service within 7 days of invoice, after all, the service being paid for is supplied within 24 hours.
This is where sometimes problems can arise and arise they did with the client who has sadly departed. We tend to have long ongoing relationships with all of our clients and because of that we see patterns of behaviour for all clients. Some clients habitually pay late, a gentle nudge from our Rottweiler of an accounts person and payment appears the next day. But very occasionally a client slips with their payments and no matter how much barking from the accounts lady nothing happens. In fact a sign we have noticed is that clients become agitated, “why are you ringing again”, “I told you it will be paid tomorrow” are typical responses and of course tomorrow comes and goes with no payment. “We will have to take our business elsewhere” was the final comment made by this client, there have to be times when you have to agree and allow the client to do just that, their overdue accounts can then be somebody elses problem. It is at this point that your client will realise just how good your service is and regret that move.
In our terms of service we indicate that overdue accounts will result in the delay in transcription. We have to, unpaid bills are a risk to our business and our cashflow. We are not ogres, we know what it is like to run a business and we are flexible. If a client picks up the phone and says that 7 day terms are not viable but 21 days are, we are happy to amend the terms as long as payment does appear when agreed. In the “client that shall not be named case”, we became flexible and extended the terms. Then suddenly a payment for only one of the two vastly overdue invoices came in promptly followed by some audio files to be transcribed. This puts us in a predicament, the client has paid some of the overdue amount, should we go ahead and transcribe the audio they have just sent? This is where alot of businesses, in my opinion make the fatal mistake. A part payment is made, continue work for the client – you have to stick to your procedures in cases like this, money is still owed, money is still overdue, as per the terms of service agreed, to them work will stop until due payment is made. We implemented this rule for the particular client and did not process the incoming work. The second invoice still remains unpaid and overdue.
It may seem harsh, it may seem hard to do, but in any business you cannot carry clients who use your service but fail to pay their bills in the allotted time agreed to when the business partnership was made. I cannot stress enough the importance of a good terms of service agreement, our agreement won us a court case which I will talk about in a future blog post.
We asked Alycia Edgar ( @alyciaedgar ) from Coastal Accounting Services what her views were on this topic and in particular this blog post, here is what she had to say:
Great post Annalisa, I would add below (basically a summary of above with some extras):
Keys ways to ensure your service of agreement are being adhered to:
- Actually have a terms of service agreement that is presented to all new clients and signed accordingly
- Make sure the client has a copy of the terms of service agreement for their reference.
- Ensure your terms of service clearly state that services will be ceased when accounts are overdue
- Ensure your invoices clearly state your terms of payment
- Ensure your statements follow these terms be being issued in the same time frame. For example, with 7 day terms, statements for (non-payers) should be issued every 7 days, unless there is an extended arrangement
- If you have enough room on your invoice, you could have a summarised version (of the main points) of your terms of service as a further reminder
- You could have your entire terms of service listed on the back of the invoice – lots of big companies do this
- Make sure the statement refers to your terms of service as well
- Accounts staff when following up by email or phone should refer to the terms of service as well
- Stick to your guns, your business is just as important as your clients
- Regular payers who suddenly become bad payers and quite agitated about the matter possibly have other underlying issues occurring in their business of which you are not aware, frankly you’d probably rather not know – it can’t be good. Walk away! In fact don’t walk run! Sure you may be left with bad debt but it’s best to stop at that debt than incur more and more.
Annalisa,
A fantastic – and timely – tip / reminder for every business. Every business has a set of terms of service that needs to be (a) set up front and (b) complied to. That’s business.
It would be interesting to see what would happen if a client walked into other service businesses like a hairdresser and said, “I’ll pay you…later.” Their terms of service (upon immediate completion of service) is crystal clear as is yours and there’s never a discussion on compliance.
Finally, there’s a distinct difference in my mind between “harshness” and reality. Business is harsh but ultimately, reality wins.
Cheers, Iggy
Excellent article Annalisa. I too have had to sack clients and I think those who are most surprised are those who still think of you as an employee – not a business providing a service.
I treat all my clients as gifts – because they are. Without them I have no business. However, that doesn’t give them the right to abuse my service or to fail to comply with the terms of our contract.
It’s a tough call but unfortunately one all business owners have to make at some point. And when you let that client go, in my experience it opens the door for a new – better – client to come along.
As usual Annalisa a great writing style and a very topical subject. Repeating what the talented Lyn says we are ‘a business providing a service’ and definitely not an employee. That is the huge benefit especially your ex-client will miss immediately I would add.
Great article Annalisa! Thanks.
Also, great tips at the end and thankfully, I’m covered!
Hi Annalisa,
I’m probably the wrong guy to comment on this excellent post. Being a hard-core commercial, I’m tempted to ask why not invoice upfront?
Over the years, I’ve used transcription services and thought it was standard practice to pay upfront?? It’s never bothered me.
From a cash=flow perspective, it’s the best set of ‘Terms and Conditions’ I’ve ever used. No pay = no service.
You’re obviously very competent and highly professional – and have a fantastic reputation, so why not ‘bank’ that reputation? It’s a bold and profitable move – and keeps all transactions clean and simple.
Happy to talk it through with you any time.
Best, Robin
PS: your sharewords really set the standard for me ‘transcribing words into profit’.
Well said Iggy! Unfortunately for most small businesses, myself included, there appears to be an element of guilt attached and therefore we often “bow down” to the client even though we know our processes are in place for a reason. In most cases, our terms are not questioned initially but after some time of service to the client so perhaps the “guilt” is on the onus of the client after all.
Thanks for your input,
Annalisa
Thanks for your comments Lyn. As we are a transcription service, I feel we are often perceived as an outsourced employee or typing service, and I continually work hard to change that image or perception, which hopefully is working
I totally agree with you, we often experience better, more appreciative clients when we have to go through the unfortunate task of letting a client go.
Regards
Annalisa
Thank you for the compliment Michele – it’s easy to write when you feel passionate about something. It was a hard decision to make as the client in question continued to praise us for our quality of work and turnaround times however, that praise obviously didn’t reach far enough to warrant timely payments or respecting our process. Without sounding smug, most clients that stray eventually do come back
Regards
Annalisa
Welcome Debra, thank you for contributing.
Regards
Annalisa
On the contrary Robin, I think you are the right person to be commenting because I too believe that our business should be an upfront payment service. I have been saying it for years and the business advice I have had to date, have all disagreed with me.
I would love to talk it through with you as my belief has been swayed and I obviously am in the minority to think this way. I would compare my service with any other text producing service i.e. Kinko’s, Snap Printing, Officeworks etc, these are all places that charge and pay upon receipt of the work.
We are looking into a more structured transcription and invoicing system whereby the actual communication between the client and the business regarding invoicing and overdue accounts will be provided by automation. If the client fails to pay on time, the server restricts the client from uploading more audio and in turn will make available to the client their invoice and a remittance for them to promptly pay their overdue account.
As you mentioned Robin, our service is a highly professional service. We turn around files within 24 hours, some clients can take six weeks to pay for this and in the interim accruing further invoices which then causes debt to the business. I am extremely proud of the way we work and my commitment to my clients, as Alycia points out, we deserve the same in turn.
Thank you for pointing out, what I believe is obvious!
Annalisa
Sadly, I can relate to your story only too well. In a previous business my husband and I had a rude awakening to how “evil” some people can be, having been through a situation where a client refused to pay for extra service despite it being negotiated beforehand and then our reducing the bill in the interest of maintaining the relationship and coming away with something which was better than nothing, only to have that client laugh in our faces and call my husband a fool.
So in this business venture I have been able to identify early on where a client is going to be either a time waster or a financial disaster. Both of these kinds of clients I am now prepared to walk away from early on in the relationship because I think it is wisdom to be discerning.
You can look at it from two different viewpoints – you are desperate for clients or you are desperate for the right clients. I would prefer to be desperate for the right client.
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Thanks for posting so much great info.