The Federal Reserve Board's decision to cut short-term interest
rates to revive our moribund economy should be of particular interest to
the CEOs and CFOs of PR agencies everywhere. The same applies to daily
T-bill rates. Why might you ask? Because it seems many of us are in the
banking business these days.
Since late last year, not a week goes by that a PR agency isn't
announcing staff layoffs, citing reduced client spending and bad debt
expenses as a primary reason for the 'rightsizing.'
Let's examine how our role as bankers to our clients has contributed to
our recent problems:
XYZ Agency wins a new account and is asked to begin work immediately. To
comply, we often extend a 'line of credit' to these clients that
includes access to our staff, media contacts and vendor relationships
while contract details are being negotiated.
Now, as anyone who has ever worked on the corporate side knows, it can
take 60-90 days to get contracts approved, accounts payable vendor
numbers established, and invoices processed for payment. In the
meantime, agencies have been working for 60-90 days without
remuneration, having subsidized newswire distribution, travel, printing
and other costs for our clients.
In a strong economy, we were likely to eventually get paid. However, in
a weak economy where budgets shift constantly, client contacts are being
outplaced themselves, and technology companies, in particular, are short
on cash, getting paid becomes a dicey proposition.
While extending credit to anyone who doesn't have an established credit
history is a bad idea in the first place; if you or I were to tell our
creditors we couldn't pay for 60, 90 and even 120 days, we'd be watching
the repo man drive away with our car. We, on the other hand, continue to
service these clients because we're afraid if we cut off service, we
won't get paid what is already owed. It's a vicious cycle we
collectively need to stop to ensure the financial health of the agency
So what's the solution? Stop being a bank for clients. Our brethren on
the advertising side learned this lesson some time ago when they got
stuck with hundreds of thousands - and in some cases millions of dollars
- in unpaid media bills. Now, many ad agencies demand media payments up
front before committing to large ad buys. Why should we be any
Rick French is president & CEO of Raleigh-based Richard French &