4 Ways to Keep Toxic Clients From Poisoning Your Business

It seemed like a straightforward enough project: a client wanted a logo. Jasmine Powers, founder and CMO of J Powers Marketing & Publicity gathered documentation from the client on the style they wanted, as well as things they did and didn't want in the design. A contract was signed and the client paid upfront.

She provided four mock-ups, but then, she says the client “flipped.” Suddenly they “wanted an illustration-style logo with the elements that were initially supposed to be omitted,” she says. They wanted a refund.

Many business owners, like Powers, will encounter difficult clients. These clients may subject the business to unreasonable demands, or even verbal abuse. And slow (or no) payments can create cash flow problems.  

“A toxic client is a person that sets your business back in a significant way…the damage can be severe,” writes small business attorney Garrett Sutton in his new book Toxic Client: Knowing and Avoiding Problem Customers. He goes on to say, “These people are capable of poisoning and contaminating entire organizations.”

In his book, Sutton shares a number of strategies for handling these types of clients. Here are four of them:

1. Charge a pain-in-the-ass (PITA) fee. “I used to fire them,” says Greg Larkin, founder of Bowery 315, which creates digital products for mature financial services companies, a he reflects on a few difficult clients he has encountered. “I don't do that anymore–I now calculate the number that is so ridiculously high that I have to say yes. Then I ask for it. Sometimes it works,” he says.

Make sure your contracts and billing policies include contingencies for the extra work some clients can create, advises Sutton. You may want to charge rush fees, for example, for those who want you to drop everything to work on their project immediately. Or you can itemize the time spent redoing work that was done to original specifications, or for fielding an unusually large number of phone calls or emails. When dealing with riskier clients, consider including provisions that help you get paid faster.

2. Send them to the competition. That's what Regina McRae, founder of Grandma's Secrets bakery in New York City does. “I have had to tell clients that they are no longer welcome to buy from me,” she says. “I am an artist. And I love what I do. When a client is nasty, rude, condescending, can't appreciate what I do, it disrupts my creative spirit. There are times when I won't even accept an order. I send them to another baker right away!”

But Sutton cautions against unloading a bad client or customer without at least giving the companies to which you send them the courtesy of a heads up. “What goes around, comes around,” he warns. Still, there may be other business owners who might be hungrier for business or up to the challenge.

3. Have clear contracts. That's part of the reason Jasmine Powers was able to avoid being bullied by her clients. She responded to their demands with copies of their written correspondence, and the contract terms clearly outlining what had been requested and discussed. They threatened to sue, and even called her a “monster,” but “in the end, they left me alone and used the logo that I sent,” she says.

A well-written contract can protect you by giving you a leg up if you need to sue a client for payment. And sometimes, as in Power's case, simply pointing the client back to the contract they signed can be enough to get them to back down. A contract you get off the Internet, on the other hand, may not fully protect you or may contain provisions that actually work against you. Sometimes free can be very expensive.

And before you sign on the dotted line, it's not a bad idea to check the client's business credit scores to see whether they have a good payment history with other vendors. A low credit score could indicate payment problems or a young business without a strong track record. Either way, you may want to consider requesting a retainer or payment up front.

4. Fire them. It took a while for Je Tuan Jones, a ghostwriter and life coach, to realize that she was dealing with a toxic client. Jones had been hired to develop the curriculum for a course, but as the project progressed, “the client became impossible to work with,” she says. The client wasn't clear on what she wanted, and even sent Jones other programs, asking her to essentially plagiarize them, which Jones was unwilling to do.

When the client became more and more demanding of her time, Jones initially gave more. But then she realized, “the more I gave, the more this client wanted.” Setting boundaries didn't work either. “Ultimately had to let the client go,” she says. “It was for the best, and I was so happy once I severed the business relationship.”

Firing should be done professionally, writes Sutton. It doesn't have to be hostile. “But firing must be done with absolute clarity and finality.”

Surviving Toxic Clients

In the end, there is no single strategy for steering clear of toxic clients or managing them when they cross your path. For many businesses, it's usually not a matter of “if,” but “when,” and having strategies in place to deal with them can save you from wasting time, or even prevent costly litigation.

As Sutton points out, “For new and existing business owners, knowing and avoiding toxic clients is a key survival strategy.”

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