Resources to Identify Bad Clients

One bad client is all that's needed to destroy the reputation (and possibly livelihoods) of any growing consultancy or service business.

It is easy for clients to spread lies, file complaints with business agencies and threaten legal arbitration. Are there registries for identifying bad and shady clients? How can a consultancy or service company determine whether a client is a potential problem in waiting?

Why would a client spread lies, file complaints with business agencies and threaten legal arbitration? I can think of two reasons.

1. They are unsatified with your work
2. The don't want to pay you or don't have the money to pay you

Assuming you are working with business, not consumers, There are a number of ways to protect yourself.

1. Check their D&B rating and look for late payment and lawsuits
2. Check with the BBB, although many companies game their system
3. Check on line for complaints about that company
4. Always get a Purchase Order before doing any work. (If they don't pay a PO, you can turn it over to a collection agency who will sue them for you.)

Mqv,

It depends on the amount of clients you work with at one time, cashflow as well as risk and exposure in taking on a new client.

You dont need to worry about this, as long as you protect your cashflow and reputation through properly structured agreements that in action limit liability as well as risk through financial exposure on your side.

There is a difference between being a contractor or consultant and being silly. Take it from me, I use to take on clients for the sake of taking on clients. This lead me to taking unnecessary risks that overexpose your growing business. Looking back at it now, some clients were milking my position to their benefit. They did this through having me take all the risk in their transactions, as a contractor I entered into agreements in order to supply them, I employed staff for their staffing requirements, etc.

At one stage I even did marketing for a project out of my own pocket to at the end of the contract find that the company was about to file for bankruptcy.

Focus on the basics:

Limit exposure
Have milestones of action (like days of payment - 25% on the 10th, 50% on the 17th, 75% on the 24th and 100% on the 31st type thing). It sounds silly but at the same time protects you from risk and exposure.

Dont enter into contracts on behalf of your clients.

And as a last tip:
Never get into a mud slinging competition with customer, no matter how horrible they are. The best method I have encountered to deal with this is to create a section on your website that promotes fair and professional business practices.

In one project that I was working on, I created a "specialist resolution service" that I advertised on the website. It was prominently positioned on the website to clearly show that my client was reasonable. If anyone had a problem and wanted their co-operation in resolving the issue, then they simply needed to follow the process.

The process being:
Arbitration by a specialized unbiased third party in the industry. Where costs were determined by the specialist as well.
(You can register at a client protection counsel or governing body who also provides similar services.)

Along with this I would say do your thing and forget about the rest, otherwise it will kill you mentally which will over time kill you physically.

Great Read that may help in screening customers:

Book Yourself Solid - Michael Port
http://www.bookyourselfsolid.com/ Four Hour Workweek - Tim Ferris
http://www.fourhourworkweek.com/ Good luck with your venture.

If you suspect that a client spread lies, and you have information (doesn't have to be proof), please consider sending them a letter from your lawyer with a clear threat to seek damages for defamation should they continue.