Is one customer too important to your business?

A large customer can bring steady work and help you invest in people or equipment. It also concentrates risk. If the customer delays payment, cuts orders or changes supplier, the effect may reach your payroll before you can replace the work.

Measure both sales and money owed

Take the last 12 months of sales and group them by customer. Divide your largest customer’s sales by total sales. Then look at the aged debtors report: how much of the money currently owed comes from that same customer? These are different exposures.

For example, a transport business earns $900,000 a year and one customer accounts for $360,000. That is 40% of sales. If that customer also owes $70,000 of the $100,000 total unpaid invoices, it represents 70% of current debtor exposure. The business could feel a payment delay even if the contract continues.

There is no universal percentage that makes a customer “too large”. Contract length, margin, payment reliability, ease of replacing the work and your cash reserve all matter.

Test a realistic loss or delay

In the scenario worksheet, remove one month’s sales from that customer or move its next payment four weeks later. Keep the costs you cannot quickly change, such as wages and rent. Where does cash reach its lowest point? How much time would you have to respond?

A lost customer may not remove all direct costs equally. If a supplier order can be cancelled, the loss may be smaller than if materials and staff hours are already committed. Ask your accountant to help separate avoidable costs from fixed costs when a major contract is at risk.

Reduce dependence without neglecting the relationship

Serve the major customer well, understand renewal and notice terms, and keep communication open. At the same time, identify customer groups where your current capabilities could solve a similar problem. Test one new channel or offer at a time, and measure whether it brings profitable repeat work. Market research helps avoid replacing one risky concentration with low-margin sales.

Review the numbers in the annual business review. If the immediate concern is a late payment, follow the late-paying customers guide and update the cash-flow forecast.

Important things to know

• A high sales share and a high unpaid-invoice share create different kinds of risk.
• A long-standing relationship is valuable, but past orders do not guarantee future volume.
• Read the contract and seek legal advice if notice, exclusivity or termination terms are unclear.