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What to Do Before Firing a Problem Client When frustration levels are high, beware of making a hasty decision about difficult customers. Here's what you need to know before letting them go.

By Gwen Moran Edited by Frances Dodds

Opinions expressed by Entrepreneur contributors are their own.

Freelance Switch

It was the midnight call to an employee's personal mobile phone demanding a routine Web site change that finally convinced Tyler Sickmeyer that his client had to go. The founder of 5Stone Marketing, an Oviedo, Fla.-based marketing firm, doesn't dump clients often, but sometimes finds it necessary.

"We want to be sure that we can deliver on every promise we make," he says. "But when it becomes clear that we won't be able to do that and it's not our fault, it's time to take a serious look at the relationship."

Deciding to shed a client can be a wrenching decision after working so hard to land the business in the first place, says New York City-based workplace consultant Kathi Elster, co-author of Working for You Is Killing Me (Business Plus, 2007). But problem clients can erode your profits and hurt employee morale and productivity, she adds. What's more, they might be preventing you from spending time pursuing and serving more profitable -- and more genial -- clients.

So if you're thinking about ditching that difficult client, here are five steps to take now.

Related: 5 Tips for Coping with Cranky Customers

1. Get the details.
Before you cut ties, take an objective look at the problems, says Lynne Curry, founder of The Growth Company, an Anchorage-based management consulting firm. That includes asking key questions about your organization's role in the problems. Have clear boundaries been established orally or in writing? Does the client know that what he or she is asking exceeds the scope of work? Are there personality conflicts between the employee servicing the account and the client contact? Before you can effectively decide whether to part ways, you need to understand specifically what the problem is, Curry says.

2. Look for solutions.
Some problems are clear deal-breakers. For example, Sickmeyer won't tolerate clients who are abusive to employees or don't pay their bills. In other cases, the issues might be resolved. This may involve a face-to-face meeting to discuss project parameters or a change in personnel on the account. But if the client isn't agreeable to trying to work on the relationship and adopts a 'my way or the highway' approach, it may be time to part ways.

Related: More Businesses Burdened By Slow-Paying Customers

3. Review your paperwork.
Before you end the relationship, make sure you review your commitments, says Marissa Anwar, a business operations consultant at Park59 Consulting in Toronto. You may have letters of agreement or contracts that govern the relationship and how it must be ended. If a contract requires you to return materials, give a certain amount of notice, or meet other requirements before dropping a client, be sure you're prepared to do so. Firing a client can be unpleasant enough -- don't add legal issues to the mix, Anwar says.

4. Do the math.
Severing ties will have a financial impact on your business. At the least, there will be a loss of the immediate revenue from that client, Anwar says. And if you've taken payment upfront and aren't willing to continue the work, you will likely have to refund all or part of the money, she says. On the other hand, if a project's scope creep or a client's demands have been excessive, ditching the business could free you to pursue more lucrative work, Curry says.

5. Take action.
If it becomes clear that the client is too difficult, not profitable enough or otherwise a bad match for your firm, don't let the problem fester. Quickly propose a game plan to end the relationship -- but without leaving the client in the lurch. For example, don't part ways at a time that could have major negative consequences for the client, Elster says. Also, do your best not to blindside the client and always keep the discussion professional. If there has been tension or you've had discussions to try to improve the relationship, the client might know termination is coming.

"What I always say is 'I don't think I can give you what you need.' At that point, if I think there's a better fit, I might recommend another company," Elster says. "If not, I'll just tell them how we're going to close out the relationship." After the conversation, she documents it in writing by sending an email. You also could send a letter by certified mail if you wish to have a more formal way of proving that you terminated the relationship, she says.

Related: How to Recognize Which Customers Are Bad for Business

Gwen Moran

Writer and Author, Specializing in Business and Finance

GWEN MORAN is a freelance writer and co-author of The Complete Idiot's Guide to Business Plans (Alpha, 2010).

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