At one point or another we all think having big customers or corporate companies as clients is a great decision, most times it is a great decision but one that comes with implied consequences that you should be aware of, so what are these consequences? We will break down some the good and the bad of having a big client in our portfolio.
The good:
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Increase in revenue:
This is the obvious positive result from dealing with larger customers, chances are that if you engage in commercial operations with a bigger client you can make the amount of money of five small companies by providing your product or service to a large company. That enables you to increase revenue at the same time it reduces the amount of time you have to invest to make that money.
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Increase in your network:
By working with bigger customers that you have before you allow yourself to create a network within those companies, consequently pushing yourself to increase your brand reach and build a reputation that can lead to more deals and more reach out within the industry.
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Open new market:
As small business owners our objective is to grow our businesses into a larger and more solid size business, this can be achieved many ways but one of the most direct ways to actually do this is by using large companies or clients to bring larger revenue deals and projects, consequently having your first big customer can allow you to actually start doing this. start with one and then make sure you deliver such a great experience they tell another one and so on.
The bad:
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Extended credit terms:
One of the most underrated issues when dealing with larger customers is that because of them being so big they tend to use small businesses as a cheap way of financing their operations, let me explain. You might provide a service to them and negotiate that they will pay you on a theoretical 30 days, however, they will actually pay you on 90 days. Most of the time there is not much you can do but to call them every week and chase up the money, but even then it might be their internal policies to pay late. So take into consideration this when dealing with larger clients, can you handle waiting for that money?
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Leverage against you:
Big companies have a lot of resources and power, this makes them your worst enemy if you want to negotiate. The reason is simple, in a negotiation both need to win, if you are trying to negotiate better payment terms, what do they win? The truth is that most SMEs have a lot of competition and their differentiation is not big enough to actually make a big corporate company move their terms forward.
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Concentration risk:
Most of us would be familiar with what concentration risk means, however as small and medium-sized business owners it is hard to avoid. It is just part of the nature of running an SME especially the first years. Just in case you are not across this term, concentration risk is the risk that you have to one of two clients in your business, normally this translates to “What would happen if your top 2 clients fire you or don’t buy from you again?”. Our take on this is to make sure that even though you have a concentration risk with big customers you still have a good relationship with them, that way they keep coming back and repaying you for your invoices.
What to do now?
Well the biggest advice I can give you is to really understand who you are engaging with, we are in the information era, nothing is hidden. Research your new client, ask questions in forums and community groups, that will allow you to know what to expect. From there find out what your tolerance limit is for late invoices, is it 60-90-120 days? and always expect the worst. Lastly build a good relationship with the employees on that company, the client doesn’t pay you, its employees make the payments, so become familiar with them and make them understand your position. The better the bond the easier would be to deal with late payments.