The invoice is overdue from the client. The agency needs the money, the vendors need the money, the bank needs the money, the principal's kids need the money and his cousin needs the money. How are you going to collect it without upsetting the client? If the client is also an owner, it's a fairly simple procedure – ask. Owners have ultimate authority. At least the agency will know where it stands. But, if the client contact is a manager, and there's an accounting department involved, the agency has a different situation. Here are some things we have learned over the years.
- First things first. If the agency is not being paid for an invoice, we'll bet you a dollar the invoice isn't in accounting. It's on the marketing director's desk waiting for approval. Marketing directors are not rocket scientists, nor are they necessarily powerful corporate cats. If the agency submits an invoice directly to a marketing director, it may be misplaced under a pile, or the director may choose not to deal with it in a timely manner for reasons of his own, or he may be holding the invoice because there is a problem with the bill. No matter what the situation, the invoice is not being cleared for payment, and agency cash flow is affected.
- The agency account executive has a major responsibility toward the collection of the invoices rendered to the client. During the billing process, the account executive needs to okay the invoice before it is released to the client. We've found many account executives "play ostrich" when it comes to facing up to potential billing problems. What are ostriches? People who stick their heads into the ground when there's a problem hoping the problem will have gone away when they take their heads out.
Here's the catch. The agency estimated a job, but not very well. The account executive should have been stronger at the beginning of the job, but the client yelled and screamed about costs. So, the account executive provided a price that he knew would not be valid at the end. Or, after the estimate, someone from the agency "went to sleep" while doing the job. Art directors love to spend all day doing potential layouts. Copywriters try to write "literature," not advertising. Production hires an aspiring Richard Avedon to shoot the photo, and on and on. In any event, it means more than necessary costs into the job.
In cases like this, after the job is finished, and the billing worksheet comes across the account executive's desk, one of two things will happen. Either the account executive will say, "Holy ˜˜!@%, we can't bill this job at this price," and he will arbitrarily throw away hundreds, or thousands, of dollars in agency profit. Or, if agency management is on the ball and won't allow charges to be "lost in the shuffle," the account executive may allow the job to be billed hoping the client won't see it. We guess the account executive is more afraid of agency management at that moment than of the client. Or maybe it's the philosophy of delaying painful things until they absolutely must be faced. In either case, there's an invoice to a client on the street which has as much chance of being paid as the agency principal has of going to the moon.
Many times an invoice goes unpaid by a client because the invoice has not been processed for some reason. If the marketing director is disorganized, the account executive should know it and make sure to deliver all invoices by hand so they can be explained. The account executive can take the lead to make sure there are no problems with any invoices, and to guide the invoices into accounting. - Many agency principals feel their bookkeepers should collect past-due invoices. We disagree. Most of the time the bill isn't in the accounting system, so the "controller's game" of cash flow, invoice receipt dating, approval signatures, and check cutting periods doesn't apply. The invoice must be discussed and cleared for payment first by the people who ordered it. Accounting only processes. Others approve. That's why bookkeepers cannot dun clients for payment. Agencies cannot ask the financial people to get involved with those who create and manage the advertising process. If the bill is held up on the contact's desk, it's the job of the account executive, or agency management, to free it into accounting.
Here's how agency collections should work.
The account executive should make sure invoices are okay. They can accomplish this by delivering invoices in person, or by making it a point to discuss all invoices with the client just to make sure there aren't any problems. At the same time, the agency financial person should establish relationships with individuals in the client's accounts payable department. This should not be construed as a dunning relationship, but as one that can be utilized to "check on the status of an invoice." This counter-check against the main contact gives the agency the ability to see if the invoice has been cleared for payment and is in the accounting department. There is a great difference between an invoice that is not paid, and still unapproved, and an invoice that is approved for payment but not yet paid.
When an invoice is approved and sent to accounting, a new set of payment problems arise. Larger companies pay bills at certain times. An agency's relationship with the accounts payable clerk enables them to learn the company's payment cycle. Keep a log of how they pay the agency. When an approved invoice is not paid within the company's regular cycle, the agency can safely begin its dunning process. At this point something is happening from the accounting standpoint. The agency's advertising contact is out of the picture, and client "cash flow" techniques are taking over.
To sum up: Never let your accounting department dun an invoice by calling the main advertising contact. This is a job for the account executive and agency management. Have agency financial people establish relationships with client financial people for the purpose of understanding companies' normal payment cycles. And begin formal dunning procedures through the accounting department only when an invoice is not paid within companies' normal cycles.
This "double-team" procedure works well with all but the smallest companies. In the case of companies where owners are in complete control of the payables, there are usually accounting people/bookkeepers working for the owners. Agencies can try the same technique of "double-teaming," but the best solution in these cases is for the owner of the agency to call the owner of the client company to inform them the agency is not a bank, and cannot operate as one for them.
Don't be wimpy about collections. Agencies can't afford it. While agencies are dunning someone clients, remember how hard people dun agencies.
