Extended payment terms isn’t a new problem for agencies but it’s been exacerbated by the pandemic as brands are taking longer and longer to pay their bills. For smaller, boutique agencies delayed payment from multiple clients can have devastating ripple effects on the business. In the latest edition of our Confessions series, in which we trade anonymity for candor, we hear from one agency exec who says that the “times are tough” excuse isn’t cutting it anymore.
The interview below has been condensed and edited for clarity.
How has the pandemic affected the agency?
A bunch of companies just stopped paying us even though we had done all the work. That happened to everybody; every agency I’ve talked to has been dealing with this. Early on, brands realized that cash was crucial to their business and that they might have to layoff employees, which is sad and terrible. But the ripple effect is that if we don’t get paid then we have to layoff our employees. That’s why you saw cuts or furloughs at brands first and then agencies after that.
What do you do when a client stops paying their bills?
Our accounts receivables person will email and say, “Hey, you owe us. Your invoice is late.” The brands don’t respond. They do it again and [the brands] don’t respond. Then what happens is that I get a message about a brand not paying their bills. I have to get on the phone multiple times to be like, “Hey, you owe us money.” They’re usually like, “Yeah, times are tough.” Of course, we know that. Times are tough for us, too. Everyone will say that we’re partners in this and that they want to be partners when this is over, that our team is part of their team. But if that’s true, I’m going to not be able to pay my team — which is your team — and I’m going to have to fire them, which means you’re firing them. So either you’re full of shit or you’ll pay us.
Do you end up at an impasse?
We’ve basically said, “Pay us what you can.” We put together a payment plan and in some cases we took a percentage off and allowed people to pay in installments. Some still haven’t paid us and we’ll have to write it off as bad debt.
What happens if they don’t pay you?
You have to do what you can control. We can control our costs, which means we have to delay raises, bonuses, 401(k) matching, which sucks. I have a bunch of people due for raises, but I can’t approve them. The bottomline is that it impacts the people.
Then you have logistical issues. If they still don’t pay you [after a few months] you have to weigh the cost of sending them to collections. You don’t want to have to do it. But we’ve done it. And we’ve had to do it a lot more because of Covid. You’re sitting there going, ‘well, if it goes to collections I won’t get all of it, but I’ll get some of it and at this point based on how they’ve treated us they’re not worth the long-term investment.’ That’s really the discussion, How much do we want to get screwed? It’s a toxic relationship that’s super unhealthy.
We definitely care more about our employees than the relationship. That said, we can control the employee situation. We can’t control not getting paid. At some point we can’t afford some of our employees because we don’t have money coming in from our clients.
Are you looking to change payment terms because of this?
Absolutely. I think you’ll see an adjustment in contracts with auto-payment where you can do it. The reality is that as you work with bigger businesses they have more leverage to pay you [on] net-30, net-60, net-90 day payment terms. This has always been an issue. Agencies aren’t banks, but they’re treated like banks. We might get to a place where clients have to pay a portion upfront to hedge [the financial risk]. There are a few different ways to hedge it. But overall making contract adjustments will be more of a thing.
You always do what you can to make sure you get paid, but now everyone is reminded why it matters now.