The Agency Business: Getting clients to honor fees without souring relationships

Firms have few tools at their disposal for collecting late payments, but, as Andrew Gordon discovers, there are ways to get deadbeat clients to pay up while maintaining professional relationships

Firms have few tools at their disposal for collecting late payments, but, as Andrew Gordon discovers, there are ways to get deadbeat clients to pay up while maintaining professional relationships

Few clients truly earn the label "deadbeat." Indeed, clients who pay late or not at all are rare. But the amount of time agencies put into getting them to pay can be substantial. And most are resigned to the fact that it's just a fact of life in the client service business.

"We've learned firsthand how awful it is not getting paid," explains Judith King, partner and principal at New York-based Andy Morris & Co. "So we're always grateful when clients pay on time."

Nonprofit organizations are always the most responsible, says King, because "they're so used to wanting money in their coffers, they understand the importance of paying on time."

But technology startups tend to be among the most delinquent.

"It's not out of malice," says Andy Cunningham, CEO of Palo Alto, CA-based CXO Communication. "It's their inability to pay. Their eyes are bigger than their stomachs, and they want more than they can afford."

Agencies can only do so much when a client is late. When clients are more than two weeks overdue, Samantha Slaven, owner of Samantha Slaven Publicity in Los Angeles, sends a reminder. But she has had to threaten to suspend services for that rare client who is more than two months behind.

"It causes stress and heartache," says Slaven. "I had one client who just wouldn't respond. It's hard to stay enthusiastic about that client."

King says she has heard numerous excuses, with lots of finger pointing on the client side about who was supposed to pay. But it's up to the agency to make sure it has a concrete plan to deal with such clients.

King makes sure she is copied on all e-mails sent to clients about their tardiness, so they know that she knows. It's a mixture of "charm and strong arm," from friendly reminders to threatening to stop work. King says she never gets directly involved unless the client is extremely late.

Some say firms should have one person to initiate efforts to get paid, such as the CFO or director of operations.

"Never let the account executive ask for the money," says King. "That will only hurt the relationship."

But Cunningham disagrees, explaining that the account leader, "who has been up until 2am on the business," has the best relationship with the client, and can often best broach the subject.

Slaven agrees that reminders should be friendly and consistent and should always come from the same person, ideally a member of the senior staff responsible for agency finances. Only when the agency is significantly late do agency principals say it is time for them to get personally involved.

"It doesn't affect my job performance, but it does affect me personally," says Slaven. "If clients give me a reason, I understand. But they also need to understand that I am running a business, and I have my own employees who need to be paid."

Agencies have little at their disposal to prevent late payments, other than spelling out the consequences in a client's contract. But King says that she has never had to use the work-stoppage clause in a contract.

Slaven says that she doesn't use such clauses, as it could create ill will if the client thinks the agency doesn't trust him, which is not the best way to start a relationship. But agencies need to make sure clients understand that they are just protecting themselves.

And if weeks of e-mails and phone calls don't do the trick, then reminding the client of what the agency does for a living might just make it crystal clear why it should be paid.

Cunningham recalls one client who refused to pay for work after the project was done, claiming that the work wasn't satisfactory. She sat down with the client and explained that it wasn't wise to stiff the agency, "who speaks to the media on their behalf and who was responsible for the client's external image." The client wrote a check right then and there, and hired Cunningham for another project a few weeks later.

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How to handle late payments

  • Establish penalties in the client's contract

  • Make sure the agency's finance team and the client's finance team establish an early relationship

  • Have a senior person, preferably from the agency's finance team, contact the client when a payment has not been received

  • Make sure reminders are friendly, not threatening or accusatory

  • Only bring in agency principals when the payment becomes extremely late

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