You've Been Stiffed!

What to do when a client pleads poverty

by Sean Chercover

You've just completed a job and the client is happy. Thirty days pass, but no check arrives. A polite phone call yields the standard "any day now" response. Sixty days pass, still no check. If it hasn't happened to you yet, it will.

Or worse: the client's bank account runs dry in the middle of post-production. You are promised that funds will become available when the job is delivered. Do you walk, or keep working and cross your fingers?

The recent 'digital revolution' has stripped leverage away from post houses, directors, shooters and editors alike. "I once threatened to roll a client's one-inch master down the street if he didn't come up with my money by the end of the day," says award-winning editor Rik Morden. "A certified check arrived at my door within the hour. But you can't do that anymore; we've lost our ace-in-the-hole." Gary Freedman, vice-president of The Post Group, concurs. "You can't hold the master tape as a hostage - with digital, everything is a master. And elements don't matter unless the client is going to make changes."

Even so, many techniques remain to "motivate" slow-paying clients, and not all of them involve the use of a baseball bat. As everyone's grandmother once said, an ounce of prevention is worth a pound of cure.

How to avoid being stiffed in the first place

When compared to conventional businesses, media professionals face numerous disadvantages. Most are self-employed, working as their own sales, service and finance departments. And most lack formal training in business credit and collections practices.

A conventional business taking on a new client runs a thorough credit check. But in 'the biz', many companies are incorporated for the duration of a single film, TV series or project, and do not have a credit history to check. It is imperative, then, to spot trouble before it happens.

The first opportunity is during the initial meeting. The interview cuts both ways - while the client is evaluating you, you should also be evaluating the client. Is he comfortable discussing money? Does he seem generally organized and forthright? Trust your instincts, they can serve as an early-warning system and they're usually right.

During this interview, you should clearly state both your rates and terms of payment. If the job is a long-term contract, negotiate to be paid weekly, or at least bi-weekly. This limits your credit risk considerably. If it is a flat-rate job, make sure that you set boundaries. Some jobs have a way of...well, expanding. Morden explains, "Two commercial spots suddenly morph into four. A documentary gets sold to foreign markets, each of which demands a different version. Chances are, the client doesn't have the cash and will try to sweet-talk you into doing the extra work for nothing."

By making yourself clear on these points, you are showing the client two things: 1) You are confident in both your ability to add value to the project and in the rate you charge for your services; 2) You are a responsible business owner looking to expand his/her client base, not an unemployed artist begging for a job.

"Think of it as getting them trained right," says Alice Magos, accountant and author of the "Ask Alice" column for CCH/SOHO, a Web site that dispenses advice to small business owners. "It has to begin with that first meeting." She points out that much of what you do on the prevention side of the slow-paying client equation is geared toward establishing a strong image of yourself in your client's mind. An image that says, This is a person who gets paid.

If, during your visit, an emaciated editor shows up with a fistful of unpaid invoices, run screaming for the nearest exit. If not, ask the client about previous suppliers. Find out whom the client has used previously in the position for which you are interviewing. Frequent changes in facilities, suppliers and talent are often indicative of potential trouble. Some businesses simply 'burn' one supplier after another, leaving a trail of bloodied invoices in their path.

Contact the previous suppliers and ask them about their working experience with the client. Ours is a word-of-mouth business, and most people are happy to warn colleagues away from deadbeats. Keep in mind that, "He's a real jerk," is not sufficient reason to turn away a client; "I never got paid," is.

Follow-up with a brief letter. The letter should include a business card and should outline what was agreed upon in the meeting. While the tone of the letter focuses on how excited you are to be working on the project, the real purpose is to reiterate your rate and terms of payment. The standard terms are, of course, net/30, which means that the total amount of your invoice in due in thirty days.

But the single most effective way to encourage swift payment is to offer a five-percent discount on invoices paid within ten days. While five percent may seem like a lot, the increase to your cash flow will be dramatic. Also, consider the time saved chasing after your money - time that can be better spent servicing other clients, networking with colleagues, or picking lint out of your belly button.

Bob Pace, Chairman of the Washington, DC chapter of SCORE, a small business advice service, puts it this way: "In my thirty years in small business, I found that 5% to be an excellent investment. There's no better way to get clients to pay your invoice first."

By offering a discount, you are acknowledging the fact that businesses often use their suppliers as interest-free banks. When an invoice passes 30 days, it's no longer their money - it's yours. As of Day 31, they are in breach of contract. But by sitting on invoices from a few suppliers at a time, a company can basically give itself a rotating 'floater loan' without some pesky loan officer getting in the way. By offering a discount, Pace adds, "the incentive to their bottom line usually ensures that your invoices stay out of the 'floater' pile."

"They float their accounts payable; it's a business decision," agrees Judith Cone, of the Kauffman Center for Entrepreneurial Leadership. "You can build that five percent into your original rate, just like retail stores do to compensate for the 3-5% that goes to credit card companies."

It is important to view the issue of credit as a relationship process. Cone suggests that the way you present your correspondence and invoices will affect how you are treated. "You set the tone of your financial relationship. Make sure your invoices are computer-generated, professional and complete. And most important, on-time." If you are asked to invoice every Friday, do it on Thursday. If you invoice at the end of a job, post-date it and turn it in a few days early. Every invoice you generate should also include an invoice number, customer number, P.O. number (if the client uses purchase orders) and terms. Under terms, write "5/10 n/30" which gives the client the discount option if the invoice is paid within ten days.

Inexpensive software is available that will format an invoice for you, while keeping track of your finances. If your invoices are hand-written on carbon forms, you are sending the message, I don't take my finances seriously, and you don't have to either.

Deliver invoices in person. If you put the invoice in an envelope, hand it over and walk away, then you haven't delivered an invoice, you've delivered an envelope. Instead, sit across from your client while he reads it and ask, "Is everything okay?" This eliminates the option for the client to wait 29 days and then 'notice' some minor error on the invoice and ask for a new one, which is a common delaying tactic. And never forget to casually mention the discount on invoices paid within ten days.

If you must invoice by mail, include a letter that serves the same purpose, while waxing lyrical about how you look forward to working together again in the near future, and all that jazz. All first-time clients should receive such a letter, regardless of how the invoice is delivered. Again, include a business card.

Okay, I've done all that, and I'm still getting stiffed

Day 31 to Day 45:

It's now been thirty-one days, and your mailbox is empty. Well, maybe not empty, but bills don't count. Make no mistake, you are being stiffed. It's surprising how many people are shy to mention a late payment until it reaches 45 or even 60 days. All the experts agree, early action can mean the difference between getting paid and getting in line behind the squeaky wheels.

Your first phone call should take place on Day 31 and should be directly to the bookkeeper. If you become angry on the phone, prepare to settle-in for a long wait. Instead, be friendly and make the bookkeeper your inside ally. Keep in mind, your empty mailbox may just be the result of an administrative snafu. If the bookkeeper tells you that your invoice has been misplaced, pretend to believe it. Send another one right away, by fax or courier.

The next day, call the bookkeeper to confirm that the new invoice was received and ask when the check will be ready. If you are told that it will take longer than a week, offer to come and pick it up. Says Magos, "Never harass the bookkeeper, but politely pin her down on a specific date, when, exactly, you can expect payment." If the promised date arrives without the promised check, you have a problem. "You have to make peace with it, it's the game," suggests Judith Cone. "How mean are you going to get, and how soon? It's a balancing act -- you still want to preserve the relationship."

If the client's financial woes occur during an ongoing project, you can simply stop work until arrangements are made. "Continuing to work for free is suicide, both for your finances and your reputation," insists Rik Morden. The best way out of this pickle, according to most experts, is to continue work on a COD-Plus system. Simply put, the client pays you up-front for all future work, and with each payment includes a portion of the past due amount.

Day 46 to Day 60:

If the bookkeeper is still claiming administrative snafu, it's a lie. Past Day 45, there are no snafus. If you still haven't been paid, it is because the client has made a conscious decision to sit on your invoice. Give the bookkeeper a break and shift your attention back to the client.

Cone suggests writing a humorous collection letter (like this) , which can be very effective. Sending it as an e-mail will lighten the mood, while imparting a sense of immediacy.

The client may be experiencing a financial squeeze, which is embarrassing to admit, but you must ascertain the reason for the delay. Getting tough and making threats will only worsen the situation. "Don't even bother raising the issue of interest penalties on past-due invoices," says production manager Joe Woodward, "It marks you as an amateur. Nobody pays interest in this business."

If the client becomes angry or aggressive in response to a polite inquiry about a past-due invoice, beware. "This client doesn't have the money. He's being harassed by other creditors and he has no plans to pay you any time soon," says Woodward. If the client admits that he doesn't have the money, you should be firm but sympathetic:

(Note: never say, "Send me $2,500 now, and the rest later." You must get a commitment to resolve the entire debt within a specific period of time.)

"When a business is in trouble, first they pay the essentials - rent, phone, FedEx," adds Joe Woodward. "Then they pay the small bills and sit on the large ones. By breaking your invoice into smaller chunks, it gives them the opportunity to pay you, even though they may not have the entire amount at any one time."

Write a brief and friendly letter outlining the agreed-to payment schedule; fax it to both the client and the bookkeeper and call to make sure it arrived.

Day 61 to Day 90:

"At this point, you must do your debt collecting in person," says Alice Magos. "Show up and sit in their lobby. Dare them to look you in the eye and embarrass them into a resolution."

To get the bill paid, you may have to offer a discount, says Bill Pace. "Unless it's a huge debt, it's not worth it to take them to court, and they know that. It's better just to get as much money as you can, and wash your hands of them. Offer five percent and see what they come back with."

While it's never wise to yell or threaten, you should become a nuisance, especially if the client is no longer taking your phone calls. Write a terse letter to the client and send it, by fax and e-mail, every other day until you get a response.

Calling in the big guns

Day 91 has arrived; you've tried everything outlined above but with no success. For a few dollars, you can get an attorney to send a simple collection letter. Sometimes the letterhead of a law firm is enough to get results. Let the attorney do his thing until Day 120. Then it's decision time.

Do you ever want to work with this client again? Some of the clients with the most work are slow-paying. If you are willing to permanently end the relationship, you can engage the attorney and take the client to court. This is ultimately effective, but is usually not worth the time and money, unless the debt is very large. Or, you can engage a collection agency to harass the client for you, freeing up your time to focus on other jobs. Of course, this will also put a permanent end to your working relationship with the client.

Any collection agency you choose should be a member of the Commercial Law League of America (CLLA) and should take no more than 25% of the total amount collected. Also, let your collection agent know the minimum amount that you will accept to resolve the debt.

Fool me once, shame on you. Fool me twice, shame on me

Just because a client is slow-paying, doesn't necessarily mean you should refuse future assignments. Sad but true, it's part of doing business. But there is no excuse for being burned twice by the same client.

If you choose to work with them again, work on a COD basis until they have re-gained your trust. If the client can't pay up-front, then you absolutely must raise your rates. They have to know that they'll pay a penalty for stiffing you, or they'll do it all over again. Pace adds, "You tell them that you have to increase prices to account for the cost of carrying the receivable. Just like any other business."

If the client is unwilling to make some accommodation for having stiffed you the last time, then be prepared to grit your teeth and turn down the job. "There are too many vultures out there," says Rik Morden, "and you cannot afford to be seen as a sucker."

Sean Chercover (sean@chercover.com) is a writer and non-linear editor who encourages his clients to pay his bills on time. They usually do.

Additional Information

CCH/SOHO - http://www.toolkit.cch.com/

CCH has created the "Small Business Toolkit" which can be accessed at their Web site. While the information found here is not specific to media professionals, there is much useful information of a general nature for small business owners.

Alice Magos, an accountant and certified planner, writes the Web site's regular "Ask Alice" column.

SCORE - http://www.sba.gov/

SCORE (Service Corps Of Retired Executives) is a network of over 12,000 volunteers who are available to act as advisors/mentors to small business owners. You can link to SCORE through the Small Business Administration's Web site, which also provides a wealth of information.

Once on the SCORE site, you can search for an executive in your local area, or, since their advice is available via e-mail, you can search for an executive who's experience most closely matches your needs. An e-mail newsletter is available. The service is valuable, and free.

KAUFFMAN CENTER FOR ENTREPRENEURIAL LEADERSHIP - http://www.entreworld.org/

The Kauffman Center is a non-profit organization, dedicated to helping small business owners with all aspects of business, including starting a business, raising capital, marketing and growing your business, as well as taxation and financial advice.

Their Web site, EntreWorld, contains a wide variety of articles and research. You can also contact their experts through their Web site.