Customers. Any and all are good for your business, right? The answer to that is always “yes”. Well, for most people, that is.
The correct answer, however, is “no”. And that’s because not all customers are good for your business. When businesses open, any and every sale or customer is grabbed and held onto for dear life!
Depending on the type of industry you’re involved in, you’ll need to screen the customers that you attract and do business with. The one exception is the retail industry where screening customers is not possible due to the nature of the business and how sales occur.
The case of Joe and his customers
Let’s take Joe. He runs an online advertising company called “Blogs & All”. He’s relatively new to running his own business but from reviews of his work, he is excellent at what he does. Joe has been in this industry for about 35 years, but as an employee and not an owner. He is a “newbie” in terms of billing and timekeeping.
When Joe first started working for himself about 18 months ago, he had no other income. He grabbed whatever business he could get and was working as fast as possible so that he could bring in more and more.
But after about six months into his business, he was working flat out but not seeing the money that should have been coming in.
He double-checked the invoices that had gone out. They were 100% accurate and had been received by his customers. Joe then turned to his expenses to see if he was spending too much. Not the case either!
Joe spoke to an accountant. The accountant asked Joe about his invoicing. Were they being paid in full and on time? “Most customers pay the deposit of 40% but I am not sure about the remaining amounts and when they come in,” Joe told the accountant.
As he said that, the accountant gave him a funny look and said: “Well done for doing what you have so far. It is important, but this is the most important part to work on now!”
Joe went back to the start and found out exactly which customers had paid him and which had not. This changed his whole outlook on customers. From that day – 18 months after starting his business – Joe became specific about the process he undertook when it came to customers.
To start with, Joe began to insist that customers had to sign a quote. He did not begin any work until they had paid a 50% deposit and this had cleared in his bank account. Provided that the deposit was paid, he would start work but nothing would be handed over until the final payment was paid.
Customer reality check
The fact is that not every customer is good for your business. Your business relies on the customer to stay in business. And if you have the wrong type of customers, they can actually put your business out of business.
You need a screening process to ensure you have the correct customers, which basically starts with payment. Generally (big assumption) the ones who pay are the ones that you accept first. You may have other criteria to add but that payment generally means commitment.
This blog post was updated on 26th August 2020
You might also like
- Business lessons from Bob.
- Provisional Tax – What is it?
- 4 ways to get control of your accounting paperwork
- VAT impacts everyone!