As seen in Forbes
In the early 1990s, I was in my 20s and worked for a highly respected tech PR firm in Cambridge, Massachusetts. We worked with world-class brands that had outstanding track records and multimillion-dollar contracts with us. These were hard-won, deep relationships, and we developed a reputation as only working with big tech brands.
Management wanted to expand our model to include select startups so we could price well for them to scale with us. We learned early to get the first and last payment on any contract. Many were not in a position for a financial background check, and the ability to pay the first and last month was a financial wellness check that allowed us to confidently move forward. But startups weren’t the only ones that caused this concern.
We had a well-known gaming company approach us for a new system launch. Our CFO knew this brand was notorious for paying bills late. They had been doing this for years, burning relationships everywhere, then jumping to unsuspecting new partners. We were both leery and excited about their “brand comeback,” because they had veered off track. With this new system, the potential for a big launch was both real and expensive. But we weren’t going to take that risk without some added due diligence.
In our financial background check, we noticed their tendency to ignore paying vendors for months at a time, so we raised the issue to the company executives and insisted that all work, travel and events be paid upfront. They agreed, and the relationship generated a lot of positive results—I loved the launch, interviewing the inventors and designers of the newest game to accompany the system for the press kit, plus handling reviews. Once financial concerns were addressed, our team could focus on the work and do what all involved knew was our superpower: executing a world-class product launch involving gamers, coders and developers, prominent media and even live jaguars.
This was an eye-opening experience for me. What I have found in my 15 years as an agency owner is that you want to work with financially stable companies. It’s not about the size; it’s how companies manage finances and partnerships that matter. It’s always a red flag when clients want to treat their partners like a bank and think more in terms of transactions than added value.
Avoiding unfavorable business deals, especially those in which the other party is reluctant to follow an agreed-upon payment schedule, is crucial for an agency’s health and sustainability. Here’s how to avoid those situations:
• Due diligence: Before entering any business relationship, research the potential client or partner. Look for reviews, past dealings and any available financial information to gauge their reliability. If it doesn’t exist, ask. You need to feel confident that your invoices will be paid.
• Clear contracts: Always have a written agreement. Clearly specify payment terms, amounts, due dates and late fee provisions. Both parties must sign.
• Upfront payments: If you’re offering something that requires significant time or resources, ask for an upfront payment or deposit. This not only tests the other party’s commitment but also provides some coverage for your efforts.
• Payment milestones: For longer projects, establish payment milestones. This ensures you receive payments at different stages of the project rather than just the end.
• Late payment penalties: This can deter clients from delaying payments. It’s essential to state these penalties in the contract. However, it’s not a great system if you don’t want to have to hire a lawyer to back these up.
• Credit checks: For significant deals, run a credit check on the company or individual. This can show their financial stability and payment history.
• Open communication: Sometimes, a simple conversation can give you an understanding of concerns or issues a client may have about payment. Remember there is your client and then there is their financial department. Make sure you meet the financial department and that they agree to abide by your payment schedule.
• References: Ask for financial references and inquire about partners’ experiences. Company owners should feel comfortable with references as part of their client review.
• Legal counsel: Having a lawyer review contracts or work on retainer can be beneficial. They can advise on the enforceability of contracts and what to do in case of breaches.
• Stay updated with payments: Implement a system in which you can regularly track and follow up on payments, and make sure your financial team is accountable. They should alert you early and often if they see something off. If a payment is getting close to its due date, your financial team will send out a reminder, and they should have an established relationship with their counterparts.
• Instincts: If something feels off about a deal or person, it’s okay to walk away. Better to avoid a potential bad deal than try to fix it later.
• Personal guarantees: For a new business or one without a proven track record, consider getting a written personal guarantee from the business owners or principal parties.
• Payment methods: Make it easy for clients to pay by accepting various payment methods, including credit cards, bank transfers and online payment platforms.
• Payment insurance: For sizable deals, consider payment or trade credit insurance. This can protect your company against defaults or delayed payments.
• A firm stop-work policy: Ensure your clients know that you will stop work when payments are late, and put it in the contract. This can have a significantly negative impact on a potential client’s business, and it’s not something you want to have to do. But once the work is done, you can’t take it back. Stopping work is the only means to force payment without getting lawyers involved.
Always prioritize your business’s financial health. It’s perfectly acceptable to reject deals that don’t align with your payment expectations or that seem risky. It’s better to wait for the right opportunity than to rush into a potentially problematic situation.
