9 Things a Startup Can Do to Protect Itself when a Large Client Fails to Pay

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Being in business isn’t easy — especially when it comes to revenue. While some clients pay regularly and on time, there are others that stall or hold off payments until the last minute. Sometimes, a company can declare bankruptcy and go out of business, leaving you with a big, unpaid invoice. No one wants to be in that situation, which is why we asked members of the Young Entrepreneur Council (YEC) for their best tips on avoiding this scenario.

“What’s the best way to protect your business when a large client fails to pay?”



How to Protect Your Business When a Client Fails to Pay

Here’s what YEC community members had to say:

1. Get Paid Up Front

“When I started my first business, I had a large client go bankrupt and left my firm with a huge unpaid bill. To prevent that from happening again, our policy is that all clients pay their invoices the month before the services are rendered. ” ~ Kristin Kimberly MarquetCreative Development Agency, LLC

2. Set A Diversification Goal

“A year ago, we set a goal of ensuring that no single client made up more than 20 percent of our business. We are already well on our way to achieving that goal. Setting a specific goal helped focus our attention on the problem. It also enabled us to identify the systems we needed to solve it. We had to get incentives right, for example, so our account managers aren’t just focused on ‘whales.’” ~ Jonathan SteimanPeak Support

3. Don’t Get Comfortable

“Always be looking for additional clients or other big/small accounts to add rather than being satisfied with accounts you have. There may always be something that comes up that changes what a client can do and you don’t want to get comfortable. ” ~ Peter DaisymeHostt

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4. Network Aggressively

“I make a point to continue making new business connections and to maintain solid relationships with established connections, even if they don’t offer immediate benefits to my organization. This allows me to know ahead of time if a big client is in trouble and can help me quickly establish new clients if things go sour. You never know when one of your contacts can provide a new opportunity.” ~ Bryce WelkerCrush The PM Exam

5. Develop A Lead Generation Strategy

“Content marketing is one of the best ways to develop a targeted lead generation strategy to attract more clients to your company. Create content with your target audience in mind, answer questions that they have, and create lead magnets such as a free download in exchange for their email address.” ~ Syed BalkhiWPBeginner

6. Put Into Place Proper Liability Agreements

“You need to have a first-class contract when it comes to big clients. Chances are they will as well. As long as you have a good lawyer that doesn’t just create a bunch of useless back and forth you’ll be safe with a strong contractual agreement.” ~ Nicole MunozStart Ranking Now

7. Start With A Limited Pilot Run

“It’s important to test the waters if you’re a small startup, because if they go down or the deal goes down, then it could put you out of business. It’s better to start with a limited pilot run, see how it goes, then you can expand quickly from there. Make sure they pay on time and that you don’t let them get too far into debt with you. Some companies are really good at putting off payments.” ~ Andy KaruzaFenSens

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8. Follow the 8 Percent Rule

“We have had this rule in place for a few years now. It’s really basic: We will not allow a client to contribute bigger than 8 percent of our revenue. Obviously, this is not an easy task since you cannot reject good business if it comes your way. However, we have found different ways to diversify our incoming client portfolio. We went through a painful process of losing a top client before, so we are very cautious about this.” ~ Michael HsuDeepSky

9. Implement Net 15 Payment Contracts

“If you don’t ask to be paid upfront, implement terms in your agreement that get you paid quicker. For example, instead of asking for net 60 payments, implement a net 15 payment contract. If they miss a payment, make sure to stop working with them completely.” ~ Chris ChristoffMonsterInsights

Photo via Shutterstock




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