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How to fire bad customers

Tuesday, October 07, 2008   By Mike Reddy

 

Every business has its share of high maintenance customers, but not every business subscribes to the 'customer is always right' philosophy and feels they have to go on supporting them no matter what. In fact, some businesses will actually 'fire' a customer they no longer want to work with and often report being happier and financially better off once having done it.

In some instances firing a customer is a no-brainer. Those that don't pay their bills or break the terms and conditions of sale are probably going to be more of a headache the more you deal with them. So let's assume you have decided there is no recourse but to fire one of your customers. Is there any way to do it tactfully and without creating lasting resentment on their part?

Firing tactics

Price them out of your market: Cost conscious customers who constantly complain about price and expect service way beyond what they are paying for are likely to move on if they face a price increase from you. You can justify it by telling them that you are getting busy and have raised your rates to be more competitive and in line with your value. Give them the new price structure based on restoring the balance between the costs of serving them and the value they contribute to your business and leave it up to them to make the decision whether to stay or go.

Pass them on: Contact the customer personally and politely explain why you think you may not be the best supplier for them in future. There are a number of business related reasons you can come up with that aren't accusing or confrontational - you are cutting back on doing that sort of work; your plate is full and you can't take on any more work; you intend serving a different market and they don't now match your customer profile, whatever. Thank them for their past business. Conclude by offering them a list of alternative suppliers you feel would be a more appropriate match for their needs.

Stop rewarding them: Some customers are chronic complainers. Often their game is to rip you off by playing on your commitment to customer satisfaction. They'll return a product they damaged knowing you replace 'no questions asked'; or complain about something because you offer a discount on a subsequent purchase to make up for slips by your employees. When it becomes obvious a customer is just playing the system it's time to answer their next complaint with a simple, “Thank you! I am sorry that we did not meet your standards.” No discount voucher or any other incentive to come back to you.

Don't let your action backfire

Get paid what's owing: A fired customer may just take the attitude that if it's alright for you to fire them then it's alright for them to not pay what they owe you. Take what steps you can to recover unpaid invoices before firing them. Don't threaten them with what you will do if they don't pay up within the specified time, just assume they're going to pay and wait on events.

Complete all contract obligations: Firing a customer without having met all your contractual obligations leaves you open to legal action for breach of contract. Before giving notice, review all your written contracts to ensure you have met your end of the bargain.

Retain supporting documentation: Any record of the customer's dealings that would support your decision to fire them, such as letters or emails in which they have threatened you, maligned your character or made a promise to pay that was subsequently broken and so on, will be valuable support if the customer does decide to take legal action.

After the break, avoid fallout

Even when it's well handled with tact, courtesy, and professionalism a customer who realises they have been fired is likely to feel a little resentful. The best you can hope for is that they don't complain too publicly about what happened to them. Meanwhile, you may feel like crowing over the fact that you are finally free of this albatross. Don't! The wider you broadcast the news the more potential for damaging fallout. It could harm your professional reputation to be seen to be gloating. It could damage business - other customers you had no intention of firing may hear of it and wonder if they are next. They might take pre-emptive action and leave before being fired. Just be quietly glad that the customer from hell is no longer your customer!


Mike Reddy is a Chartered Accountant, business coach and advisor helping businesses in Sydney, Melbourne, Brisbane and Gold Coast to easily increase their profits and cash flow. He is currently President of the North Sydney Chamber of Commerce, a Regional Councillor for Sydney North East and a member of the Institute of Chartered Accountants Sydney leadership team. As well as advising businesses, Mike presents business development seminars and webinars and is regularly contacted by the media to comment on small business matters. You can connect with him on Facebook, Twitter and Google+.