SMEs dangerously reliant on one customer

SMEs are putting themselves at risk by being too reliant on one major customer for the majority of their sales.

According to a survey by Close Invoice Finance, one in ten small businesses say that more than half of their turnover comes from a single client.

David Thomson, chief executive of Close Invoice Finance, says: ‘By relying heavily on one single customer, companies put themselves at serious risk of business failure should this customer fall into financial difficulty.’

Alex MacPherson, chief executive of Octopus Ventures, says: ‘You only need to look at the effect of Zavvi collapsing because of its relationship with Woolies to see the impact of having too close a relationship with one other company.

‘Small businesses have the advantage of being nimble and quick. They should try and build their customer base as much as possible to mitigate any risks.’

According to the latest figures from the Insolvency Service, 4,607 companies went into compulsory liquidation or creditors’ voluntary liquidation during the fourth quarter of 2008 in England and Wales. This is a rise of 11.9 per cent on the previous quarter and an increase of 51.6 per cent on the same period a year ago.

Of the 500 small businesses surveyed, three in five said they had no insurance to protect against customer default.

See also: How to encourage your business contacts to refer you to new clients – For new and growing businesses with limited marketing budgets, a personal referral can be one of the best ways to pick up new business.

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