The Right Way to Dismiss Problem Clients

By Marco Terry
April 29, 2017
RETAIL : MANAGEMENT

During the recession that began in late 2007, things were tough for most companies. Many were laying off employees, and the construction industry ground to a halt. Most companies took any and every client just to get sales. It was a matter of survival. Unfortunately, this approach left many glass companies with some problem clients.

Making sacrifices and taking lessthan- ideal clients can be a strategy to survive a recession. However, it’s not a good strategy during normal times. It can tie up resources, harm corporate morale and hurt your long-term success. We’ve all had problem clients, and sometimes they have to be let go. Here’s the right way to do it.

Step 1: Determine who your problem clients are

The first step is to determine who your problem clients are. Each business has its own definition of a problem client. However, most fall within three general categories. The first category is problem payers. These clients are always paying late, asking for extensions, demanding discounts or underpaying invoices. The second category is clients who are never satisfied with the products or work. They always find faults and demand changes. These clients take a lot of time and energy to manage. The last category is clients who outright threaten and insult a company.

Step 2: Review your contracts’ termination clauses

Once you have created a list of clients you want to let go, review the termination clauses in their contracts. The termination clause outlines the reasons and the procedures that a party must follow to terminate a contract. Termination clauses vary by company and by contract. For example, a contract for ongoing products/services could have a simple 30-day notice clause. This clause means that a company must give notice 30 days ahead of the time of termination. Other contracts may have much more complex clauses and timeframes.

An owner must understand if a contract has this clause and how it works before terminating a client. Otherwise, he or she could accidentally breach the contract while trying to terminate the client. The last thing an owner wants is expensive legal liabilities related to improperly terminating a problem client.

Step 3: Contact a lawyer

Contact a lawyer before attempting to dismiss any clients. Review each contract with the lawyer and determine the proper termination dates and procedures. Although contacting a lawyer adds to the costs, it must be done. Remember, their job is to keep the company from getting into expensive legal trouble.

Depending on the complexity of the situation, this step could cost a few hundred dollars to a few thousand dollars. However, it’s money well spent.

Step 4: If the only problem is late payments, try this trick first

Every so often a company may have a client who is easy to work with and reasonable, but is just an awful payer. They have one hundred excuses for why they can’t pay on time, and their payments will be 30, 60, or even 90 days past due.

In some cases, this issue can be fixed by advising the client that they will no longer get 30- to 60-day payment terms. From now on, they must pre-pay for all the work. This tactic results in one of two possible outcomes. The client either starts pre-paying for the work, or the client leaves on their own accord. Either outcome solves the problem.

Before making this change, have an attorney review the payment clause of the client’s contract. It may need to be amended before changes can be made to the payment terms.

Step 5: Make it friendly, if possible

Follow a lawyer’s advice on all proper termination procedures. Have the attorney craft the proper termination letters and set the termination dates. Unless the lawyer objects, consider calling the client before sending the termination letter. This call can help make the process less contentious.

In the past, I have called the client to discuss some of the major issues. This call helps ensure everyone is on the same page regarding the commercial relationship. Do not assign any blame. Keep an even and professional tone. Above all, don’t turn it into a shouting match.

At the end of the call, I let the client know that we are looking to terminate the relationship amicably. I usually say something along the lines of, “It looks like we are not the right solution for you. It’s in your best interest to work with a company that is a good fit for you, and, unfortunately, we are not it. I think it is best to part ways.” I like using this line because it’s non-judgmental and does not assign blame.

Step 6: Keep your resolve

Don’t be surprised if the client wants to stay and promises to improve things. An owner has to make a judgement call on this one. But, what assurances does the owner have that the client won’t return to their old ways after some time has gone by? In my experience, it’s best not to second-guess.

Marco Terry is managing director of Commercial Capital LLC a factoring company and leading provider of invoice financing to companies in the glass industry. He can be reached at 877/300-3258.