Why doing favours is bad for business

[dropcap]D[/dropcap]oing favours for clients and even random people can be really bad for business – let me explain… Coming from a non-profit background it has always been in me to help others and do as much good as I possibly could. While this is very noble and I still try and practice these principles in my personal life, when it comes to business sometimes being too kind can harm you at the end of the day.

I tried to carry similar principles into business thinking that If I was extra kind and lenient in business that it would pay off. But it didn’t. In fact it had the complete opposite effect. It almost seemed that the more rope I would give, the more my clients would take until I was the one who found himself in a noose. Some lessons are learned hard and after six years in business, I am still learning them.

One of the major leniencies I allowed was with regard payment. I just felt really bad to ask my clients for money. After a polite email with an invoice I would simply sit back and wait. Even after weeks and sometimes months had gone by I would still trust that they would settle their accounts. I mean I held them in such a high regard, surely they felt the same about me? Sadly I was wrong. Some clients just didn’t pay, while others took ages to pay and needless to say, that a business simply cannot function without a cash flow.

Now by no means am I saying that all our clients were like this. I am thankful that the majority are completely awesome and always pay on time and some even pay us in advance. But there are those who simply don’t care. There is no sense of urgency in their willingness to pay although getting their work done was very urgent. A lot of our website hosting clients were not paying their accounts on time. While others had not paid for up to six months. Any ‘normal’ company would have probably shut the sites down after ten or fifteen days, but not us – we were to kind and noble to do that.

What happened? The more we allowed this so called ‘kindness’ to continue the more clients took advantage of us and eventually it started causing problems in our own business. We had to do something about the problem, but what? One of the first things we did was to sign up to FreshBooks which helped save so much time with our monthly invoicing. Another great benefit we discovered while using FreshBooks was that the system sends out reminders of late payments automatically – awesome! The result was almost immediate. We saw the time frame to receive payments drop considerably and that helped more than you can imagine.

The other measure we had to put in place was a little more harsh in a way. We decided as a business we simply just couldn’t allow our clients, especially hosting clients, to freeload on us anymore. It was hurting our business and it had to stop. Imagine if we as a company just decided not to pay our providers for our server rentals. Our account would be suspended within ten days and we would had to pay late payment charges just to get reconnected. We decided to go a similar route. We decided to give our hosting clients twenty days to pay their accounts. If their accounts were not paid we suspended their accounts and charged a reconnection fee to get them reactivated.

I sent out our new ‘policy’ with invoices to clients who’s accounts where in arrears and within a couple of hours we had already received some payment notifications. As for the clients who got offended and were unhappy well they caused the offense in the first place by not paying their accounts so I don’t really think they have any right to be angry. You can’t please everyone I guess, but I discovered that when you run a business properly, it is better for everyone – clients and us alike.