Businesses thrive on interaction with large clients. They often form the most significant inflow of money and help businesses meet their obligations from month to month.
With so many companies closing down, it’s not far-fetched to think that one of your massive clients might face bankruptcy.
How to Move On After Losing a Big Client
When that happens, you will need to have a clear plan in place to recover any overdue payments and soften the blow until you find new customers. That’s why we asked 12 entrepreneurs from Young Entrepreneur Council (YEC) the following:
“What’s one key tip you have for protecting your business when a large client is at risk for bankruptcy? Why does it work?”
Here’s what YEC community members had to say:
1. Get a Guarantor for the Contracts
“Get a guarantor for the contracts. If you have a guarantor on the contract as well, it won’t really matter if the main client does go bankrupt, as any debt can be placed on the guarantor and payment can be enforced.” ~ Nicole Munoz, Nicole Munoz Consulting, Inc.
2. Ask for Payment Upfront
“Update your paper records and ask for payment upfront, either in full or as a partial deposit. The former works because you can prove to a bankruptcy court that your products and services are entitled to compensation. Then, the latter protects you proactively from a company potentially running a scam or not knowing how to manage assets. Then you aren’t waiting on a payment that will never come.” ~ Duran Inci, Optimum7
3. Get a Lawyer
“Lawyer up. Seriously, get a lawyer to advise you on your business’s legal rights. Based on your contracts and bankruptcy law, you may have certain rights to protect and certain actions you can and can’t take.” ~ Peter Boyd, PaperStreet Web Design
4. Begin Negotiating ASAP
“If you feel that your client is at risk for going bankrupt, there is a strong chance the debt to you will be discharged. The best move you can make is to begin negotiating with your client as soon as possible. Try asking for a smaller portion of the payment now and consider extending or forgiving the rest of the debt to put yourself in a better position than receiving nothing at all.” ~ Blair Thomas, eMerchantBroker
5. Ensure Constant Communication
“When a large client is at risk for bankruptcy, communication is key. If you don’t stay up to date on what’s happening with their situation, you may never get paid. Keep in contact with them regularly to ensure you know what’s going on and get an idea of when you’ll receive your payment.” ~ Stephanie Wells, Formidable Forms
6. Get a Realistic Projection
“Set a meeting immediately and establish realistic payment terms. When I say realistic, I mean let them tell you how much they will be able to pay back with the current cash flow and get realistic projections on how much you would be able to get back. Keep moving forward, see if there are other accounts that are growing and focus on their deliverables.” ~ Solomon Thimothy, OneIMS
7. Offer a Reduced Payment
“Offer them a reduced payment to settle their debt with you. Once they officially file for bankruptcy and the court takes over, there will likely be little to nothing left for you.” ~ Josh Weiss, Reggie
8. Auto-Charge Credit Cards
“Set automatic credit card charges. We auto-charge cards on the first of the month. It is a billing policy we have had since the beginning and it ensures that we are paid on time. There is nothing wrong with requesting a payment type if you offer a service. If you are not a charity, your service rendered is paid as you would like to be paid. We use a credit card to avoid the hassle.” ~ Matthew Capala, Alphametic
9. Restructure Your Payment Terms
“I encountered this situation a few years after being in business, and I learned to restructure my payment terms. We require clients to pay half of the fee prior to the project start or at the start of every month if they are monthly clients. This helps ensure our books remain healthy while laying out the client expectation at the start. This protects all parties involved.” ~ Kristin Kimberly Marquet, Marquet Media, LLC
10. Get Trade Credit Insurance
“A good solution would be to get trade credit insurance. Trade credit insurance products are a cost-effective way to mitigate risk against credit default by one or more clients.” ~ Mahesh Chaddah, Reservations.com
11. Move On and Find New Clients
“While losing a major client can be a big blow, there’s very little use in worrying about the situation. What you can do is ask yourself, ‘Where can I place my attention now?’ You may have smaller clients whom you can nurture. Or you could rethink your marketing to find new customers. The best step you can take is to move forward with a plan to find new clients.” ~ Syed Balkhi, WPBeginner
12. Diversify Your Client Base
“Bankruptcies are an unfortunate fact of life. The best way to hedge against being catastrophically impacted by the failure of a client is diversification. High customer concentration is a problem for many businesses. If your five biggest customers account for more than 25 percent of revenue, you should take steps to diversify your client base. Diversification is the best bulwark against client bankruptcy.” ~ Matt Diggity, Diggity Marketing
Image: Depositphotos.com
#12 is a really important one. Don’t get too many eggs in one basket.
Yes, #12 one is good but needs strategic thought throughout to execute.