The CustoMonster… Not All Customers Are Worth Keeping

The CustoMonster... Not All Customers Are Worth Keeping

Ok… I have to admit, I didn’t come up with the term CustoMonster (I actually got from a great website called www.businessbeware.biz… More about that in a minute), but I love the phrase.  In a tough economy, some businesses go by the theory that all business HAS to be good business… this is not always the case.

I read a report the other day about the state of the construction industry today and one of the contributors made an excellent point – in this current challenging economy where contractors are searching for projects – finding the wrong job can sometimes be worse than having no work at all.

I believe that statement is very true in today’s economic environment, but my personal experience is that it’s accurate in any business climate. I can think of many general contractors over the years that even though they were doing quite well — got greedy and took on a project that was beyond the expertise of their company. It can be an expensive lesson to learn and may even cause lasting damage to a company’s reputation if they end up being removed from the project.

However, even worse can be choosing the wrong customer to work for – I have never understood the reasoning that a contractor feels they need to continue working for a customer because they’re owed too much money to walk away. I have known many small contractors who were owed thousands of dollars by builders – sometimes well up into six figures – but they continued to show up when the builder called with new work because they thought that was their only chance of ever seeing even a portion of their money.

While this was a huge issue from 2006-2010, I’ve also seen it happen during good times when a builder or developer made a few bad decisions and was suddenly down on their luck. If you’re a small contractor, just one customer like this can put your company in serious jeopardy and I don’t know of too many happy endings to these types of stories.

You should follow the advice of your accountants and lawyers – that’s what you pay them for – but watching your receivables continue to grow without any funds coming in doesn’t help the payables too much. In my opinion, warranting the work already completed or that you’re under contract for takes care of your obligations – don’t take on any new work with a customer in serious arrears until payment arrangements for jobs completed have been made or better yet – the invoices are paid in full.

Just about all contractors are looking for work these days, but the wrong type of project or customer can quickly make matters worse – do your due diligence before bidding on a project and don’t throw good money after bad if you have a struggling customer.

If you do find yourself in a situation where a customer repeatedly ignores request for payment on work that has been completed, exercise your rights… go to a collection agency and go to a website like www.businessbeware.biz  (there are several of them out there).   Let other businesses know about this customer, so that they don’t end up in the same situation as you.

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Posted on Aug 19, 2011 by admin | Posted in Construction Accounting, Construction Leads, Uncategorized

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