First Person: Knowing When It’s Time to Cut Ties With a Customer

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As a self-employed individual, I know how tough it can be parting ways with a customer or client. There's the money and business side of things, but there can be a personal relationship that has developed over time as well.

However, sometimes in the business world we have to look out for our own best interests, and as much as we'd like to play nice and be helpful, doing so doesn't always pay the bills. This means that sometimes a business relationship needs to be severed, but knowing the right time to do so can be tough.

Gauging an hourly rate

Determining an hourly rate could be one of the most important tools in deciding whether the work and effort being put forth for a customer is worth what they are paying. Typically, this is relatively simple, gauging production times and costs over a multi-day or week period and dividing these times into the amount paid.

However, sometimes there is more to the hourly rate determination than just time versus pay. The difficulty of the work and the acceptance percentage by the customer (whether they take the work on the first completion or send it back for adjustments, etc.) can play roles as well. And as with the most recent customer I parted ways with, fighting constant battles over rates when a customer tries to renegotiate terms can minimize my efforts, is frustrating, and places a strain on the relationship since we were always bartering over pricing. When I negotiate a set price with a customer or client, there is a reason it's a set price. I don't expect to have to renegotiate that price over and over again, and doing so can become exhausting, and frankly, irritating, demeaning, and at times somewhat offensive, as if my work isn't worth the rate.

Long-term business prospects

Another aspect that I consider when determining whether it's time to call it quits with a customer or client is what the future with this particular business partner looks like. It can take time to create a working and profitable relationship with a customer, sometimes months or even years.

Initially, business might be taken on in lesser amounts or at lower rates to gain customer loyalty, possibly costing a supplier money in the near term. However, these losses could be worthwhile if there is the possibility of profits or increased business levels down the road by way of relationship management. If prospects are bleak in this area though, it might not be worth the time and costs to continue struggling with a particular customer, indicating that it could be time to severe ties.

Accounts receivable can be an important factor

Having had extensive experience with accounts receivable within the hospitality industry, I've learned to spot this warning signs when it comes to customer collections. Less frequent or irregular payments, requesting longer payment terms or a higher credit limit, and making partial payments can all be signals that there could be issues -- financial or otherwise -- on the other end of a customer/client relationship.

I noticed that with the most recent customer with whom I cut ties, payments were becoming less frequent and more difficult to obtain. This raised red flags for me and let me know that something might be amiss. I didn't want to be playing a game of financial musical chairs in which I was the last one standing when it came time to try to clear my accounts receivable.

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Disclaimer:

The author is not a licensed financial or career professional. The information provided in this article is for informational purposes only and does not constitute advice of any kind. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.

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