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To Fire or Not to Fire a Client, That is the Question

Posted by [email protected] on 10/24/2024 12:00 am  

Orlando Cardenas, P.E., MBA
Silver Fox Advisor
October 2024



       I.   To Fire or Not to Fire a Client, That is the Question

Yes, sometimes you need to fire your customer or client.
Throughout my 30 years in business, I have seen the costly changes of working with certain customers.

These customers run the gamut of corporations, governments and general contractors and yes, some individuals.

    II.   Determine Who Your Ideal Business Client Is

1.    Your Company priorities.

#

 

 

Communications

 

Profits

 

Cash Flow

 

Resources

 

Personnel

 

Timelines

 

Need the Work

 

Exposure

 

 III.   Qualify Clients

It is imperative to qualify and classify your clients to determine which are your ideal clients.  This can be based on your business history and needs.  Grade your clients and maybe grade them before you spend valuable time formulating a proposal or even entertaining them as a potential client.

I highly recommend setting up a grading matrix with weight factors for each client and potential client.

First look at your ideal clients then you’re not so ideal clients, formulate a matrix i.e.

1

Have we worked with them before?

If yes, do you want to continue working with them. See below questions, If NO = 0

-1 ~ 10

 

2

Is the scope of work within your scope

-1 ~ 10

 

3

Do they communicate professionally

-1 ~ 10

 

4

Do they pay fast – net 15 ~ 30 days

-1 ~ 10

 

6

Is the client’s scope of work clear

-1 ~ 10

 

7

Does your client accept your proposal and terms as outlined on your proposal?

-1 ~ 10

 

8

Are your required to sign a nonnegotiable contract?

-1 ~ 10

 

9

Do they provide retainers and progressive invoicing?

-1 ~ 10

 

10

Do they require payment waivers

-1 ~ 10

 

11

Do they require and bureaucratic registration

-1 ~ 10

 

12

Do they pay any of their requirements i.e. background checks, drug testing, training etc.

-1 ~ 10

 

13

Do you have to sign up and pay other sites in order to work with this client?

-1 ~ 10

 

14

Other

-1 ~ 10

 

Total if grade is:

XX NO

XX Maybe

XX Yes

XX Definitely YES

 

 

IV.   Fire Them

Firing a client, while not always easy, can be a necessary step for a business to protect your time, resources, and overall well-being. When dealing with clients who are consistently disruptive, disrespectful, or simply not a good fit for the company's values and operations; key reasons to consider letting go a client include persistent communication issues, late or non-payment, unreasonable demands, a lack of alignment with your business goals, and situations where the client's behavior is detrimental to your team's morale and productivity.

 

   V.   When to Consider Firing a Client

  • Changes in their procurement process

Changes can negatively impact you and positively impact them. These changes can be from payment terms to the bidding process and compliance demands.

 

  • Payment Issues:

Consistently late payments, non-payment of invoices, or disputes over agreed-upon fees can create financial strain and disrupt your cash flow.

 

  • Cost of doing business.

You need to consider what that client is costing you. Whether it is financially or peace of mind.

 

  • Poor Communication:

Frequent missed calls, ignored emails, or a lack of clear direction can significantly hamper project progress and create unnecessary stress for your team.

 

  • Unrealistic Expectations:

Clients demanding unreasonable deadlines, excessive scope changes without additional compensation, or constantly changing their mind on deliverables can be draining and lead to quality issues.

 

  • Disrespectful Behavior:

Abusive language, personal attacks, or disregard for your professional boundaries are never acceptable and can negatively impact your team's morale.

 

  • Misaligned Values:

If a client's business practices or ethics significantly clash with your company's values, working with them can damage your reputation.

 

  • Excessive Time Consumption:

Clients who require an inordinate amount of hand-holding or constant attention, disproportionate to the revenue they generate, can take away from serving other clients effectively.

 

  • Scope Creep:

The client is consistently adding new demands or features to a project without proper adjustments to the contract or budget.

 

VI.   Benefits of Firing a Client

  • Improve Cash Flow
  • Improved Team Morale:
  • Resources – ROI - maximum return of your investment.
  • Cost of Money
  • Peace of Mind
  • Removing a toxic client can alleviate stress and improve overall team satisfaction.
  • Focus on High-Value Clients:

 

By prioritizing clients who are respectful, communicative, and profitable, you can allocate your resources more effectively.

  • Protect Your Reputation:

Avoiding projects where you can't deliver quality due to unreasonable client demands can safeguard your company's image.

How to Professionally Fire a client:

  • Document Concerns:

Keep a detailed record of problematic interactions, including dates, times, and specific examples of client behavior.

  • Open Communication:

Initiate a conversation with the client, clearly outlining your concerns and reasons for considering termination.

  • Offer Options:

Depending on the situation, you can offer the client a chance to address the issues or suggest transitioning the project to another team member.

  • Formal Notification:

If necessary, send a written termination notice clearly stating the reasons for ending the relationship and outlining the handover process.

In conclusion, while firing a client can seem daunting, it can be a necessary step to maintain a healthy business environment and prioritize clients who value your expertise and respect your time and boundaries.

  • Negotiate:

Let your client know why they are not an ideal candidate and open negotiations.

 

VII.   Example of a Corporate Client we Fired

For many years we had a client in the energy business (whom we will not mention) who paid us within 15 days, provided us with a PO and we had a great direct relationship with them. Then this corporation started reducing their administrative overhead by replacing their administrative staff with cheaper overseas outsourced staff. They also transferred their entire administrative staff and accounting burden to their vendors.

We were forced to incur the cost and burden of these administrative elements.

  1. Contract: They also required us to sign a 35-page non-negotiable yearly contract.
  2. Safety: They had mandatory safety training for each person, and we were forced to pay for the personnel and this training session. This safety training was a weeklong session.
  3. Accounting: They also forced us to incur the expense of training our personnel with their accounting system and entered our invoices line item per line items with their accounting codes.
  4. Products: Within this contract they dictated how /what they would pay for the products we sold them. They would only allow a 15% markup. They also required us to submit our associated invoices for payment information of every product that we sold them. In addition, they required us to obtain a payment waiver from each of our suppliers.
  5. Labor: They also required us to provide certified wage scales with W2 and 1099s plus medical insurance benefits.  Hour rate per trade and we could only markup labor 15%.  In addition, our labor would start when our personnel arrived at their site to sign in and sign out. They also required us to submit an employee / contractor waiver signed by each of our personnel indicating our payment to them.
  6. Insurance: They increased our requirements in our insurance coverage to 5 million dollars plus an insurance assignment to them.
  7. Drug Testing: They require us to sign up for a random drug testing service and pay for this service without compensating us for the cost.  The cost for this service incurred the cost of the personnel’s time and the testing. This group would weekly inform us that one of our personnel needed to be drug tested, which we incurred that cost.
  8. Verification: We were also required to sign up with a very expensive offsite provider to monitor all our credentials, insurance, and testing.  This cost was an annual expense with auto pay and auto renewal, no exceptions.
  9. Payment: It took them about (6) SIX months to pay us and sometime only partial invoice payments.  The payments were also an accounting nightmare. For example, we might have 10 invoices (in our accounting system) and these invoices would contain 10 items or so. They would pay one line item or a couple line items from one invoice and other line item of a couple of line items for another invoice, but they would not tell us what lines items and what invoice they were paying, consequently making it difficult to credit any of the invoices and creating an accounting mess.
  10. ACH : Our payment was only via an ACH method without notification.

Needless to say, we had no choice but to fire this client and other clients that also implemented these processes.

One client told us, “If you don’t like it, we will just hire someone else”

In conclusion, you must determine who you want to work with and the trade-offs they implement. In the pursuit of revenue, it can be tempting to hold onto every client, but sometimes, the most strategic move for a business is to let go. Firing a client, while seemingly counterintuitive, can be necessary to protect your company's time, energy, and reputation when a relationship becomes detrimental.

What is the cost of doing business with your clients? Who is your ideal client?

 

Orlando Cadenas P.E. MBA

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