When Your Income is from Only One Customer
Provided by Visa, Content Partner for the SME Toolkit
The "Eggs in the Basket" Dilemma
Having all your eggs in one basket is always a dangerous situation, especially if that customer is a slow pay. It's devastating because by extending credit, you're becoming their bank. And if you're tied to one customer and that customer is sold or runs into a problem they'll take you down. You can't fix the one-customer situation overnight. You need to set plans or goals to attract additional customers and then slowly work towards those goals.
Having one customer is a balancing act. On one hand, you're rooting for the customer and hoping they will continue to like your service. On the other hand, you have to work very hard at building your own enterprise so that the failure of the one customer will not put you out of business. Edeburn suggests having regular meetings with the customer to monitor how their business is going and to find out if there are ways you can be of more help. Edeburn also advises that before making any major investments try to get a long term commitment from the customer, one that allows for price adjustments.
Small Accounts Can Help
If you find yourself growing quickly with one customer, you may be tempted to terminate smaller accounts. Smaller accounts give a business a constant, reliable source of income even if it is dwarfed by large orders from one customer. “These secondary sources of income can be particularly helpful to a manufacturer who's dealing primarily with one large retailer,” says SCORE counselor Larry Lakin. “Often these retailers can help you establish a market or test-market a product. Testing like this can help you determine whether to commit to the manufacturing. And if the product succeeds in the smaller store, or with a niche retailer, the manufacturer has more of a story when he wants to take it to Wal-Mart.”
- Run periodic credit checks on your prime customer.
Don't rely on assumptions and data from last year. You owe it to yourself to stay abreast of your big customer's credit worthiness.
- Create a survival a plan if your prime customer goes under.
Your plan may include cost-cutting, hibernation, or borrowing. No plan is perfect, but—like keeping a flashlight under the bed—it's good to know it's there.
- Understand exclusivity.
Exclusive arrangements—sometimes common with large accounts—prohibit you from supplying to others. These arrangements can be very profitable but they can also be a ball and chain. If you are tied to an exclusive deal, ask for a written agreement with regular guarantees—for example minimum annual guarantees, and if possible price adjustments.
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