This post is my variation on "Client Selection 101: Pick the best, leave the rest".
If you are in business you have clients. Not all clients are desirable. It is best to select those that are and leave the others to your competitors.
The Three Truths of Clients:
- Every client has value for each is a source of income.
- Maintaining a client relationship takes time and time is a cost.
- A client relationship cost that is greater than it's income is a bad thing.
How do you know if a particular client cost will be ambrosial or catastrophic?
Myth 1 (through 99!): "All I need is a valid contract".
A valid contract is necessary to clearly state who is (and equally who is not) responsible for what, where, when, why, and how. It serves to lessen ambiguity. It is not a magic document that invokes a wrathful court to make all right with the world. Slow or non-paying clients can become missing or bankrupt; obnoxious clients will remain so; litigation recovery may be less than the outstanding balance; and other parts of the world are, well, foreign.
Before the contract you must know who you are dealing with: both the individual(s) and the corporate entity. Do a background check. Yes it takes time, yes time is a cost. A background check is a form of insurance and insurance is a good thing.
A background check is not only before the contract, it is before you actually do anything.
The value of the proposed contract determines the background check cost: the amount of time, effort, and expense against the level of detail required for comfort.
Your comfort level may differ - adjust accordingly. The steps may vary depending on the type of client: corporate (the default), individual, government agency, NGO, charity, school, etc.
Always (takes an average of 1-hour - excluding the first two):
- at least talk on the phone, preferably meet in person: get an initial emotional feel.
- determine who has what authority: input, veto, payment, etc.
- check out their website, yellowpage ads, media ads.
- contact Better Business Bureau, Chamber of Commerce, their Trade Association, etc.
- ask personal "network" for feedback: both good and bad.
- verify that the company actually exists where it is purported to be, is actually doing the the business that it claims, and has been for as long as claimed - contact the appropriate provincial/state/national government corporate registry (at this stage only if online).
- verify that the person(s) actually work for that company and have the authority claimed. Especially confirm signing authority - if not listed as a principal of the company must have legal proxy granting them required signing authority.
- online search of corporate and individuals (include company principals) names.
If time to research/write the proposal will take more than 4-hours or the contract will be greater than $5,000CAD do a credit check (takes some money, little time):
- run credit check: Equifax, Experian, TransUnion, etc.
- run corporate information check: Dunn & Bradstreet, Hoovers, Kompass, etc.
If time to research/write the proposal will take more than 12-hours or the contract will be greater than $20,000CAD do a further check (takes some more money, a little more time):
- run deeper check: CEOExpress, Knowx, Lexis-Nexis, etc.
- run specific checks: Companies House(UK), EDGAR, SEDAR, etc.
Not all the information you receive from these sources will be positive. At some point you must decide if the negatives exceed your comfort level. If so pass on by knowing that you have likely saved yourself money and grief. If not then get to work landing the client!
If the company is new or a sole-proprietor it is "go on the feel" time. If the feel is "good" it is 2-step program time:
- I shall do only that which I have been prepaid to do.
- I shall release and/or upload nothing until the contract has been paid in full, including all additions, revisions, and adjustments, and the client has stipulated contract fulfilment (except for release and/or upload).
Is it worth an hour of my time per new potential client to weed out the likely problematic ones? I believe so. On larger contracts is it worth $50CAD to $1000CAD for some peace of mind? I believe so (my rule of thumb is I will pay 1% of probable contract cost above my own time on a background check).
I also run a recheck or a deeper check if more than a year has passed between the time one job finishes and a new one starts (for same client), if a major increase in contract value is proposed, if ... well, I am insecure and paranoid.
Set your own parameters but please do not do a job without a well thought out contract and do not enter into a contract without doing the due diligence of a background check. Your emotional and financial balance will thank you.
