Six tips to help PR agencies ease the pain of debt recovery
20th March 2018
When we first embarked on our careers in the glamorous world of PR, few of us would have foreseen that, the more senior you become, the more time you spend chasing money. By far one of the most painful parts of running a small agency is trying to get clients to pay the money they owe. It’s not a sexy subject, but debt recovery is something that unfortunately affects most agencies and freelancers at one time or another.
The good news is that debt recovery need not be the painful experience you think it is. Since launching Big Ideas Machine three years ago we've had to escalate things to legal action twice, and on both occasions, we recovered our money quickly, and we even recovered the legal fees too. The most significant lesson we learnt was that assuming you've exhausted less confrontational avenues, it's a much less scary process than you might think.
Obviously, we are all in the business of fostering great agency/client relationships. But sometimes things don't work out. Too often, agencies worry more about the feelings of their clients than their bottom line. But let's face it, if your client is trying to stiff you over their invoices, they probably aren't a client for the long term anyway.
So with all that said, here are six tips to help you avoid the pain of debt recovery.
1. Dispel your preconceptions about chasing client debt
Most of us are worried that recovering the debt is going to be expensive and time-consuming. There can also be a worry that it’s only worth doing over large sums. These concerns are legitimate but also unnecessary; this is about enforcing the terms of your contracts (see below) and collecting what is rightfully yours.
2. Have a signed contract in place for all the work you do
No matter whether you’re working on a project or retainer, be sure to always have a legally enforceable agreement in place to protect you – including payment terms. You should include clauses in your agreement reserving the right to recover the debt, plus all legal costs and interest. The PRCA has a superb contract for agencies and freelancers with specific payment clauses in section 8.
3. As a UK company, you can use the UK legal system to protect your rights – regardless of where your client is based
When one of our overseas clients decided it didn't want to pay for the work we had done, we assumed – just as many others do – that our ability to pursue that debt would be impossible. In fact, as long as your contract includes a ‘Jurisdiction clause' stating that the agreement is subject to UK law, then it pretty much doesn't matter where clients are based.
4. Create an escalation plan
If you have an automated accounts system in place such as Xero, you can use this to send out automatic reminders when invoices remain unpaid. If this fails to spur clients into action, you need a process in place that defines how you escalate things to the next level. For example, if any of our clients fail to pay their invoices on time (which is too often!) then it gets escalated to the relevant account manager to ‘have a word’. If a friendly nudge fails, then it falls on myself and my co-founder to raise it with the most senior person we have contact with. It is then our decision at which point to take things further.
If and when you threaten legal action – which is a real last resort – make sure you stress that you will seek recovery of money owed PLUS interest and legal fees, as per the contract. More often than not, this is as far as things will need to go.
5. Stop worrying about burning bridges with the client
Nobody wants to lose a client. Sometimes cash-flow problems are real; we typically work with start-ups, so we've had situations where clients are raising funds and can't pay their bills. But if communications are good, there shouldn't be a problem. When clients just don't pay, ignore emails and calls, or invent reasons why they shouldn't pay for the work you've done, then don't be afraid to stand up for yourself. You are the one who is being wronged, and it's your right to recover money that you are legally owed. If your client consistently fails to pay you and takes advantage of your good nature, then you should question whether they are the kind of client you want in any case.
6. Know your legal options
The first thing a legal firm will suggest is a Letter Before Action or LBA. An official lawyer’s letter sent to the CEO, founder or board members giving them seven days to pay can work wonders.
If that doesn't work, then in the UK, you can issue legal proceedings, which requires them to pay within 14 days. If that doesn't work, then you still have a few steps you can take before things get serious, and it becomes an issue of legal enforcement. For overseas debts, these middle steps aren't available, so you should get advice on exactly what options are best.
Our advice is to use a specialist debt-recovery company to handle the whole process. Not only does it do this for a living, but it removes the stress from the situation as once it is involved, the process is between it and the debtor. We highly recommend Lovetts, who have helped us both times we have been in this situation, but obviously, there are many other great firms out there too.
Written by James Kaye, director at B2B PR agency Big Ideas Machine