Redefining a “Good Customer”
By Pam Saul, CB of Saul Bookkeeping
With the shifting of trade due to the pandemic, it has become imperative for all businesses to attract new customers and to hold onto existing customers. I have found that our definition of a “Good Customer” has been stretched to help us through the lean times. I think that now might be the time to review those shifts and redefine what is a good versus bad customer.
First, let’s give a few examples of a bad customer. Here are some red flags to watch for:
· A customer has a false sense of value for your work or expertise. They will expect a massive amount of work done, but don’t want to pay for it. This is a classic signal that they assign no worth to what your skills and expertise provide to them.
· A customer oversteps the boundaries set by you. This shows they do not respect the limits set by you. They may expect work done outside of the parameters preset in the agreement for free or may haggle over the price after the work is done.
· A customer is habitually late in paying their invoices. It usually starts as a day or so, with an excuse of being too busy. If not addressed, it can soon become 30 days or more.
From a bookkeeping perspective, how can you address these situations to keep them from occurring in the first place? The easiest answer is to have financial documents that clearly outline specifically what you are providing and for what price.
For the first example, a price sheet outlining the costs for specific tasks should be provided before any work is started. If a person argues that the fees are too high, you are immediately aware that this person may not value or understand what is involved. If you can explain the process, how much time it takes, the work involved, and the value of the work, that person may have a better understanding. If they agree, then you’ve changed a bad customer into a good customer through education. If they still don’t agree, you have the right to refuse to take them on as a customer and maybe save yourself a big headache in the future!
For the second example, you should provide a letter of engagement or contract that states exactly what services you are providing and how you will perform those services. It should state the scope of work, your terms for providing that work, and what you expect from the customer. This letter of engagement can be customized to suit your specific type of work. This document should be reviewed by a lawyer to make sure you follow specific legal requirements in your area. If the customer agrees with your specifications, you’ve got a good working basis. If they don’t agree, you can again, decide not to take them on as a customer.
For the last example, you have two documents to use. First, your contract should state your payment terms. Second, when you send an invoice, it should have a due date showing the date payment is due. QuickBooks has several reports that can also help with tracking this. An Accounts Receivable report shows unpaid invoices by customer name.
There is another report that most people don’t know about that is very helpful. The Average Days to Pay Summary shows you each customer and then how many days it takes them, on average, to pay their invoices. This report can be very eye opening!
Here is a sample:
Customer Name Average Days to Pay
Smith Services 61
Brown & Sons -5
Blue Bell Inc. 30
Research Viewing 120
Which customer do you think really is a good customer? Brown & Sons shows that they prepay their bills, which means you are providing services using their funds. Blue Bell pays right on time (your invoices are net 30), and both Smith and Research are always late, and by more than two months! This report can open your eyes to problems that you can now address with your customer. You can send reminders, assess finance charges and late fees (if in your contract) or create a payment plan. If they don’t want to be a good customer and address this issue, you have the right to cut off services and seek legal recourse.
By providing financial documents that define your standards of service, you are starting your relationship with your customer that will help them be the good customer that you need them to be. They know what you are providing and what is expected of them. Communicating clearing and concisely through your financial documents can help your customer be that good customer you are looking for.
If you’d like to learn more about how Saul Bookkeeping can help, please contact me at email@example.com for a FREE 30-minute consultation.