Your thoughts: Getting clients to pay

[Daniel Stone]

I own a smallish production company in Maryland and I would love to poll you guys to see what experiences you're having and what your solutions are.

When the economy tanked, we didn't see a slow-down of business at all. In fact, we've been busier than ever. What we have seen is an increase in the amount of time our clients are taking to pay their invoices.

Before each production we have our clients sign a production contract through which we extend NET 30 terms and address the issue of 'sequential liability' (fancy agency term for "we can't pay you because we haven't gotten paid"). The contract also states that the client will pay 1.5% interest per month for balances over 30 days old (the highest allowed by law, I think).

The process is always the same: client signs contract, we go above and beyond, client leaves final edit session singing our praises with hugs, we deliver the project and bill NET 30.

I looked through our records and, out of 32 invoices this year, only 8 were paid on time. 8! In order to get an invoice paid, I have to call my clients and physically ask for a check. I do usually get a check shortly after but why is it that I have to hound them for payment?

I've resigned to the fact that nobody ever pays the interest -- even if my "reminder" is a revised invoice with interest added. They just subtract it. Of course I know better than to fight over interest.

Aside from the fact that it's insulting and completely demoralizing for the next project for that client, it puts a strain on our cash flow. I'm tempted to changing my terms to, "come pick up your finals with a check in hand" -- but I'm afraid I'd chase away my agency clients.

I would love to hear what experiences you guys are having out there -- and what suggestions you have.

Thanks!

[Dave Blackhurst]

This will make sense when you think about it, although it may seem strange.

Raise your rates by 5-10%...

Offer a corresponding 5-10% "Pay on delivery" discount, only if they pay immediately.

Keep the interest clause, but you'll never get it unless you re-invoice with the interest.

I'd actually recommend raising the rates by say 7.5%, and offering a 5% POD discount. IOW build the interest into your rates... remembering that everyone likes a discount, but some may have to delay payment for whatever reasons.

[Don Bloom]

OR you could hire some big nasty looking dude that has a bulge in his jacket, no neck and a mean sound name like Joe. Introduce him as your "collection" agent. Bet they'll ALL pay on time, maybe even before you shoot the job. :-)

[Craig Seeman]

Don't Invoice "NET X"

Clients pay before I hand over final product. They can see a watermarked master to verify the work's been done. In your case, being busy, can drive your business into bankruptcy. I've worked for several big and boutique facilities that went under, at least partly, due to "NET X" billing.

Bill in thirds with final payment before delivery. Your not a bank and you shouldn't be making loans to clients.
"NET X" is a PRIVILEGE clients EARN. They have to have a history of good payment. They have to have ongoing work. The one thing you can hold against a late payment is cessation of all ongoing work if the previous bill isn't paid. Once paid they revert to payment before delivery.

Even good paying clients can go bad so it's rare that clients get the "NET X" privilege. They'd have to be a big client with frequent repeat work or you have nothing to hold as collateral against late payment.

The time and the wear and tear are lost against other work you could have been doing during that time. That's more so for a small business with limited equipment and human resources.
The time and effort needed for collections is an additional loss.

If you have no collateral you have NO MEANS to coerce payment.
If you're a small business, they know you can hardly afford the collection expenses.

[Chris Davis]

I've also experienced clients paying slow. Some of the worst ones are the $30k-$50k projects. Fortunately, those are all paid up now, but were as much as 180 days late.

It's a little dance we do, because we're bidding on a new $30k project for the same company. Honestly, I'd rather do one $30k project for someone who pays the last $10k a bit late than 10 $3k projects that pay on time. It's more profitable to manage one project than 10 projects.

It's just a part of business we live with.

[Don Bloom]

IMO the economy right now has a lot to do with it. I had clients that paid on the spot until the economy went blammo then they went to 60, 90 days and some even longer. Some even went out of business, luckily none of tose owed me anything. I never did the 30 day net thing, I did 33% before the job, 33% when shot and balance upon sign off of finished product or at delivery depending on who they were. Most paid on time or close enough that it wasn't a problem but now....it's almost the "be thankful you're getting paid at all" type of thing. Of course if they have a track record of being consistantly late (more than 30 days) you might need to rethink your billing process or whether you want to keep doing their work.
I know a few smaller outfits that went bellyup because they weren't getting paid on time or anywhere close to it.

[Craig Seeman]

I've worked for several post house over the last 30 years (mostly the first 20 years). All went belly up. All were hit with some number of slow pay clients.

Chris, if you're still making enough on the two payments, floating the last may not destroy you BUT I worked for a big post house that had one client that booked more than half the rooms every day. They were behind over 6 months and over half a million dollars. They threatened to take their business elsewhere if they were pushed to catch up.

The post house went under (and the client went elsewhere likely doing the same damage) and a good portion of the staff did not get a large part of the back pay.

It's the biggest clients that will take you down. As long as you're getting the bulk of the money before completion but in the above case ALL the billing for the client was Net 30 so scores of jobs they were doing had been completed but not paid.

BTW the post house, as they were going down, tried to push the other clients to pay faster to make up the slack and those client left as a result.

And another BTW, think of some of the factors that CAUSED this economic downturn. It only takes a small portion of slow pay clients to tank a business. Bigger clients are actually a bigger risk for a smaller business since risk isn't diversified.

If clients start taking longer to pay than they are "at risk." If they go under that take a portion of you with them as a result. It's time to "tighten your credit" in a bad economy and draw up new terms for at risk clients unless your business model is to be a high risk lender.

[Shawn McCalip]

When I worked for a small studio, we had some clients that not only nit-picked and nickel and dimed their budgets down to peanuts, but also figured that they could pay on their own terms- or simply not pay at all. A few years of dealing with that lunacy drove me mad enough to start my own business. In the middle of a recession too. You'd think I was a glutton for punishment!

Since then, my policy is pretty simple. I'll meet with a potential client, discuss what kind of project they're looking to have done, and draw up an estimate. Once the estimate/quote is agreed on, I ask for a 50% deposit on the day of the shoot. No deposit, no work is done after the shoot. The final 50% is due upon completion. If you don't pay the remaining balance, you don't get the final product. I think this is a reasonable way of doing things, and I'm pleased to say that my own clients have been wonderful about it. It's funny how the people that usually complain about a policy like that are typically the same people who don't like to pay anyway. Those people go to my former employer, and I get my own awesome clients.

[Daniel Stone]

Thanks for the thoughts, everyone! It's awesome to see all of your great feedback -- and it's right along the lines of what I was thinking.

I have immediately implemented a change in our terms - 50% deposit, remainder due on delivery. You guys wrote some great things that made me think... especially that NET X is a privilege that should be earned.

You're also absolutely right that the clients who nickel and dime you are the same who don't pay their bills. I've recently learned that there's value in saying "no". I now look for 'red flags' and ask myself if the money I'm making from this client is going to be worth the trouble of collecting it.

Dan