Stuff happens. This may cause a client to suddenly become financially strapped.
You fire up your computer and you see a “Dear John” letter from a client at the top of your inbox:
Our business has taken a financial hit because something unexpected occurred. We want to let you know we are working hard to manage our finances. However, we need to postpone our work with you immediately. We plan to reach out to you once our finances are in a better place.
What happens now?
As you know, cash flow issues can create panic for business owners. That’s when your client’s survival response kicks in. At this point, your client is seeking to quickly relieve the immediate pressure.
When someone’s stressed out, the focus shifts from higher-level thinking to survival mode. Logic takes a backseat. Navigating through the financial crisis becomes the primary concern. This is exactly what happened to a client of mine, an accountant. Let’s call her Angela.
Angela’s client starts to review all monthly costs, then quickly decides which expenses to keep, postpone, or terminate. Because this client pays Angela monthly, her accounting services were re-evaluated.
Although this client is in the middle of a contract with her, and there are terms in the work-agreement about terminating services, this client chose to immediately discontinue her services. Survival thinking influenced this decision.
Angela knew her client needs her firm’s services now, more than ever. And yes, she was frustrated because this is exactly when her client ought to lean in rather than pull back. She believed she could help this client turn things around.
The financial crisis solution
Here’s when a client’s financial crisis ends up affecting your firm’s cash flow. It’s possible to avoid this from occurring. A solution does exist.
First, let me explain the cause and effect. It lies in how your client pays your fees. Clients who pay for your services on a monthly basis are the ones who will most likely discontinue when finances become tight.
The big picture strategy is to transition clients from a monthly payment to a pay-in-full contract. When clients pre-pay, your services are considered an asset through these tough times rather than an expense. As a result, you’re able to fully support your client and avoid a difficult conversation about terminating services.
Now that you’re aware of the big picture strategy, let’s pivot back to the immediate response when you realize a client is reconsidering your services.
You receive a client’s “Dear John” letter about no longer working with you because of unexpected cash flow problems. Consider these three options, then choose which you prefer.
- Terminate. Your client requests to terminate your services and you agree to that, even if they are in the middle of a contract with you.
- Suspension. You know this client will recover and you don’t want to lose a good client. You suggest a suspension rather than terminating the service. It’s easier to choose this option if you have a work agreement. Don’t make the mistake of leaving the suspension open-ended. Instead, give your client a 90-day grace period. Then schedule a meeting before the 90-day period is over to get an update.
- Scholarship. Your firm creates one scholarship slot which is specifically meant for a current client who falls on hard times. This client would continue to benefit from your firm’s services, but unable to currently pay your fees due to financial hardship. During a staff meeting, review the circumstances with your team before offering it to the client. Once that client is approved, then continue to serve that client pro bono for up to 90 days. Create a single scholarship slot in your firm that is available at any given time as long as it’s not currently filled.
As a client-centered firm, the scholarship slot allows your firm to give back to your clients and community.
Advisory questions for financially stressed clients
Angela didn’t want to drop this client because that’s not her style. She’s vested in the client relationship, so she opted to scholarship this client for 90 days.
We then discussed immediate actions to help her client turn things around. Some angles we explored include the following:
Temporary staffing solutions to keep business operational and maintain client services.
Review how to quickly improve cash flow.
- Is invoicing current?
- Outstanding AR?
- Improving collections
- Reducing write-offs
Discuss where this business is leaving money on the table.
What expenses can be cut to go lean?
Angela now has a game plan. She will offer this client a 90-day scholarship slot. The top priority is to assist her client through this financial crisis. Sometimes you just have to be there for your client, regardless of their financial circumstances.