The Peak of the Frenzy

Our late founder, Tony Mikes, originally wrote this article in 1998… and it’s as if he wrote it last week. As he was fond of pointing out, business is cyclical, and the best defense is a good offense. Your best offensive strategy against economic downturns is sound business practices. Read on…

There is a time in every business cycle where the cycle reaches its peak. If you listen to market forecasters and some economists, we may be at the very tip-top of the roller coaster, just about ready to take a plunge. Of course, this is purely speculation; I’m no economist. I’m barely literate in business math. Remember, I was an agency creative. I do have a great sixth sense, however, and I see and feel some craziness that cannot be explained in any way other than “peak frenzy.”

Here is my point. In my experience, right before a crash, there is always a frenzy of business activity. During this frenzy, companies run fast and make a lot of commitments they are not able to fulfill when the cycle swings downward. You must be careful of this. I sense we are entering this economic stage.*

The only way to protect your agency is to practice good credit and collection policies and procedures. Following are some points to consider.

Bill as much as you can in advance. I know many companies do not want to pay in advance, but agencies should strive to avoid being their clients’ bank.

Nevertheless, progress bill all of your projects. Every month, send an up-to-date bill to your client for work you have done in the previous month. This keeps you current. If you cannot progress bill, bill immediately upon completing the project.

List and age your receivables. You need to know who owes you and when it is due, so you can institute and maintain a collection policy.
Never have the bookkeeper call clients. If the bill is still in the marketing department, the account executive should collect it. If the bill has been approved, but is sitting on the controller’s desk where cash management games are being played with it, then the bookkeeper can do the collecting. The bookkeeper should make connections with clients’ accounting departments, so they can talk “financial to financial.”

Offer a discount for speedy payment. Some companies never pass on a discount. Only honor the discount if they meet your deadline.

Shorten your terms cycle. Go to 20 days net, 10 days with a discount. Clients are stretching payment out to 45+ days. Don’t let them get away with it.

Do credit checks. Dun & Bradstreet and other databases allow you to see if a client or prospect is credit-worthy. Also, if you borrow money from a bank, your loan officer can do some credit checking for you. After all, they don’t want to see your agency get into trouble either.

I’m sure there are many more methods you can use to protect your hard-earned money. Let this article serve as a wake-up call. My Spidey senses are tingling… there are some strange happenings going on in the economy. I want to make sure you are not caught short. If anything I’ve written here can help you, then this article itself is worth its weight in gold.

* Editor’s Note: Remember, the Great Recession began and intensified during the run-up to the 2008 national elections… a period of governmental change similar to what we may face this year. Although the last seven years have not always been easy, the business markets achieved some stability. Today, underlying weaknesses in global economies (including growing instability in China) are combining with increasing chaos in the Middle East, and the potential for another housing bubble… enough to keep everyone “on their toes.”