This week our resident agony (Dutch) uncle offers advice for when your client is being slow to pay.
Question: My client isn't paying on time and I'm getting pressure from my CFO to stop working on the account. Why is my CFO so worried and what should I do?
Answer: Firstly, check the payment terms that either you, or perhaps someone on your team, has agreed with the client. The CFO might assume that it is 30 days because that’s the norm, but bigger clients in particular have hardened procurement teams that go into bat for them and can negotiate payment terms of up to 90 days with their suppliers. So, they might not actually be late in paying if those are the terms.
But assuming they are, your CFO is worried because late payment can often indicate financial difficulties at a company. It is commonly a warning sign that the business is in trouble. Which can then mean that at an agency might not get paid at all.
Don’t fall into the trap of thinking that if a client doesn’t pay up then you can just simply sue them for the money that they owe. You can do this, but the legal costs really rack up quickly. Plus the fact that if the client genuinely hasn’t got any money, even if you sue and win, there’s no cash in the business to pay you anyway.
The CFO is also not happy because late-paying clients can also affect an agency’s cash-flow position. Agencies need cash to pay for important things like staff salaries and – particularly for smaller agencies – if they’re not getting paid it can be tough at the end of the month to meet payroll costs.
Letting clients get away with not paying on time is also generally not a great habit for a business to get into. It is a sad, but real, fact of business life that few clients pay bang on time and agencies' finance departments have to chase and chase for payment on many occasions. The role of the person who runs the client business is therefore key. He or she needs to be on top of where the client is with their payments, a step ahead of the CFO if possible.
Written by Graham Goodkind who is a Dutch uncle – a new type of non-exec business adviser – to several agencies in the marketing services sector, in addition to being founder and chairman of PR agency Frank.
If you have got a question for our agony (Dutch) uncle regarding any issue relating to the running, operations, business or financial aspect of a PR agency, either as an owner, manager or executive, then email firstname.lastname@example.org and your question may be featured in a coming issue.
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