The Importance of Working With Clients Who Have Good Credit
Top ways small business owners can avoid late paying customers and keep their cashflow running effectively
As a business owner, finding new clients can be an exciting and even joyous experience. Whether you are a B2B or B2C operator, when someone in need of services selects your work above that offered by all others, it is an excellent feeling. Once you have been hired, you are certain to do your best and deliver the agreed upon work within the time limit specified, and once you have done so you issue your invoice. And wait. And wait. And wait some more – until it becomes clear that your client is either unreliable or severely disorganised.
The clients that you were once so pleased to have secured have now affected your profitability, cost you money and potentially prevented you from completing projects on time for other clients. While it may not be possible to get them to pay up fast, you can try to avoid taking on new unreliable clients in the future.
Clients who are late to pay affect your company’s profitability
Your success as a business depends in part on your reputation, your credit and on your ability to keep costs low while still delivering excellent work, but it can also depend on the clients that you do business with on a regular (or even a one time) basis. While you are waiting for your tardy clients to pay their invoices, you may be struggling to pay for supplies and stock to fulfill the demands of your other important (and honest) clients. This can result in a sullied relationship, a loss of revenue and potentially even unpaid debts to your own creditors.
Businesses who regularly deal with late-paying clients may be forced to seek additional credit in order to keep their cash flowing and their business afloat; seeking additional loans impacts their credit rating negatively. This can all be avoided if savvy business owners properly screen their new clients before ever delivering work.
What can a business owner do to avoid this?
There are many things a business owner can do to avoid taking on clients who may prove to be a liability.
- Build trust slowly: When you begin working with a new client, try to complete a few small projects at first, gradually working up to larger orders once trust has been established on both sides.
- Ask for a deposit: Do not feel embarrassed or timid about asking for a hefty deposit, especially for large orders from newer clients.
- Ask to see a credit report: For a large order or ongoing work it is acceptable practice to ask your client to see your client’s credit rating. They can obtain a free credit report online in order to assess their credit rating.
- Keep money in escrow: Third party websites or guarantors can hold the entire amount in escrow until both parties are satisfied; this prevents either party from feeling cheated.
Don’t let an unreliable client ruin your credit – follow these tips to ensure that your cash flow stays positive and your reputation is unsullied.