What happens when a client owes you a lot of money for many months? The question is, should you even permit a client to owe you that much money for that long?
Recently, an agency folded because clients failed to pay media costs already incurred, and the agency had to fold with the deficit owed to media owners.
This scenario is not unique or new. It has happened before, frequently.
I worked in an advertising agency before and knew about clients who stalled payments even after the reasonable credit terms, for months. The agencies fear “losing the client” and did not chase up on the stalled payments, and burdened their own financials. Some closed.
It has been our standing policy that there is no credit term for any client. For services we carry out, our clients respect our terms and pay on time. We are selective about clients, and we love the clients we serve. Clients also understand that for third-party costs (such as paying media owners, event and location owners), we are not financial institutions and they know why they need to pay upfront before we begin such projects. After all, we are a professional services firm and we bill our labor of time, creativity, and effort. We are not a bank that extends credit, and we have no business reason to burden ourselves.
Bad debt is bad for any business. Even banks recognize the trauma of bad debt and will usually go to no end to pursue sums. Bad debt can crumble businesses large or small, from manufacturing plants, contractors, to banks. There is no reason for a client to owe money when labor has been painstakingly carried out, and costs have been dutifully incurred on behalf of a client.
As an analogy, can you imagine NOT paying your employees on time? They would have every moral and legal right to wrestle the sums owed to them. As a viable business, you would pay your employees on time. And as a respectable business, you would also pay your suppliers on time.
It is simple, down-to-earth, decent business sense – a fair wage on time for fair labor.