Late, Slow Pay Clients
We have a client we've done a lot of work for. They're VERY demanding, and often not much fun to work for. Lately...they've also NOT been very keen on paying their bills.
We started doing work for them last October, and they paid on-time for the first 4-5 months we did work for them.
But now they've over gone to 150 days on some invoices, and upwards of 120 days on a whole host of others. We're FTPing dozens of spots for regional air for this client weekly, and the only leverage we have is we've shot hundreds of hours of raw footage (and we have the tapes), and more importantly, we have the power to NOT output and upload their spots for air.
We feel our only option here is to tell them they have to pay a certain percentage (at least 30%) of outstanding bills within 10 days, or we'll stop uploading their spots for air, and stop all current production on projects (there are scores of them in progress).
My question is: has anyone else faced this problem? Rumors are rampant that the company is in financial trouble (yes they're well-known), and they've closed an estimated 250 of their 450 stores in the last 6 months. The closing numbers could actually be higher as no-one really knows. Worse still, last week we fed-ex'd some DVD's and low and behold, Fed-Ex won't accept their billing number. They wouldn't tell us why but the girl on the phone said "you can probably guess." Then...this week we get a bill from Fed-ex and about 25 shipments from the last few weeks sent to this client were
reverse billed to OUR Fed-ex account number without our knowledge. (To the tune of over $700 with a $10 "re-billing" fee for each one switched). We have no idea who authorized this or whether this was an automatic Fed-Ex action when they weren't getting paid...or whether our client initiated it...and we cannot get answers from either.
So the bottom line is...we could live without getting paid for work done, but we DO NOT want to get stuck for the nearly $65,000 in expenses that's included in what they owe us, including hotels, travel, air fare, meals, fees for freelancers, grip trucks ...well you get the picture.
So...since there are so many sharp business people on this list...I thought I'd ask opinions. I'm not really concerned about pissing these folks off...as it's not much fun to work your ass off trying to help them with their marketing...when they seem to not care about paying for it. But we want to approach this in a way that will insure we get paid the maximum owed (preferably all of it), which probably means "we shouldn't piss them off!"
Lastly...they have paid us something each month...but beginning in about May, the payments have gotten more infrequent, and get smaller and smaller (very small in fact) with each payment. But it's no where near enough to even begin to get them caught up. We have made them pay deposits on some large projects, but most of the projects we do are TV spots, and most have budgets in the $3-5000 range for post, so it's hard to ask for a deposit on those.
We plan to take some action on Monday or Tuesday...so eagerly awaiting feedback on this
So fire away folks.
Magnetic Image, Inc.
What does your contract state? Most contracts for production work entail a net 30 or 50-50 payment schedule. A more detailed contract includes stipulations for the issues you are experiencing.
Certainly stop doing more work, and consult your attorney for your next move.
[Chris Blair] "and the only leverage we have is we've shot hundreds of hours of raw footage (and we have the tapes), and more importantly, we have the power to NOT output and upload their spots for air."
That's actually a lot of leverage, if these projects are important to them.
You've got to hold their feet to the fire. I don't know what your terms are (let's say, net 30). In that case, the very next time they call you for anything, and I do mean anything, whether it's to shoot something, edit something, or even just look up a slate number... I'd inform them (politely) that you simply can't do any more work for them until any and all invoices that are past due (more than 30) are paid in full. Period.
It might seem that it is better to get a little of their money at a time if possible... but it sounds like you have a lot personally invested in their projects. Look at it this way, if they are in financial trouble, you're probably not going to get paid anyway. If they are able to pay, they are obviously one of those clients that will do so only when forced. You can't be the weak link, you have to be the squeaky wheel. I guarantee you that they are not 150 days late on their rent, phone, internet service, payroll, insurance, and all that jazz. If they were, they'd be out of buisness... because none of those other vendors would stand for it. Why should you? You're their production company, you are not their bank. Why should they treat you as such? More importantly, why should YOU let them treat you as such?
[Chris Blair] "My question is: has anyone else faced this problem?"
Yep. We do business primarily with advertising agencies. One of them in particular we really like because they are very talented folks and bring us very good and interesting work. But they are VERY slow to pay. Once they ordered some new dubs of a television commercial that we produced for them more than a year earlier, despite fact that they had very large outstanding and waaaaay overdue bills for several other projects. We made the dubs, called them and told them they were ready for pickup, and asked that they please bring a check to cover ALL of their overdue invoices before we released the dubs to them. Well, the lady that runs their office was livid. She came down to the office, didn't quite make a scene in the lobby but did read our general manager the riot act. She claimed that we were "holding her dubs hostage" and that she didn't do business that way. She wrote the check, got the dubs... but then demanded all of their archival material and left in a huff saying they would "never be back."
The next month they were back, and have been back ever since (and are paying faster).
The simple fact that this client reverse-billed substantial FedEx charges to you without your permission is completely unethical and should give you a good clue as to how they operate. I guarantee you they wouldn't give you the kind of break that you are giving them.
Time to "man up" and get your money. With your attorney, if need be.
Fantastic Plastic Entertainment, Inc.
At this point, they know they got ya. If they dump you tomorrow, so what. They"ll just get the next company to jump in and repeat what you've already done.
So, let's see, can they duplicate the footage you shot for, say, $25k?
What reason do they have to pay you $65k?
I had a client do this to me two years ago. He sweet talked my wife into waiting till the job was done so he could write one check. Then, he told her that the money was in Canada and it would take two weeks to make it into our bank but he needed his infomercial to air so the money could start rolling in. We sued him in June and won a $20k judgement. Guess what, the money is still in Canada and it will always be in Canada. Want to see the footage that he didn't pay for and we can't get pulled from the web? http://www.swingjacket.com.
This was only $20k. And, I have all of the original HDCAM tapes.
Note: If I had a written contract, I could have also sued for attorney fees but because we did it on a verbal deal, no such luck. Verbal contracts are legal and binding but they are weak.
Good luck. I say do a drive-by.
It's a dry heat!
Sony HDCAM F-900 & HDW-2000/1 deck
5 Final Cut (not quite PRO) systems
Sony HVR-M25 HDV deck
2-Sony EX-1 HD .
Go get your money.
and don't do anymore work for grinders. It aint that life is too short for this stuff... man, life is too damn loong for this stuff.
Thats why I have a strict policy of NO delivery of finished product with out FULL payment.
There are no "technical solutions" to your "artistic problems".
Don't let technology get in the way of your creativity!
Thanks guys. All the posts mirror what we've discussed internally. We just wanted to get some other perspectives. And this isn't the type of client that brings you a project where you can do estimates and contracts. We have probably a 20 projects going with them all the time, and each one goes through about a dozen revisions (almost all ridiculous in nature). They're totally schizophrenic in how they approach TV ads and other video projects, so it's REALLY difficult to track each one.
They never ask for estimates or provide us with budgets...so there are no contracts for most projects. The only thing we get contracts for is large shoots where we incur a lot of expenses. Our invoices are net 30 days so they're way past due on a large amount of receivables.
Thanks again for the help and suggestions.
Magnetic Image, Inc.
Good luck. It would be nice to know what you did and how it all turned out.
Bennett Marketing & Media Production, LLC
I'll update as we move through the process.
Magnetic Image, Inc.
[Chris Blair] "They never ask for estimates or provide us with budgets...so there are no contracts for most projects. The only thing we get contracts for is large shoots where we incur a lot of expenses."
...and shockingly they're in financial trouble.
I'd say simply implement a moratorium on everything until they bring the accounts up to within 30 days...that is your only leverage. Yes, they will likely go somewhere else, but you'd at least recover something.
The main issue is that it was let slip this far. Enforcing it on a smaller, less overdue basis is always easier. Demanding clients are a reality these days, but i don't think it's unfair then to demand invoice settlement as aggressively as they demand everything else.
I would also investigate what the post-able loss is that you could likely incur this year. You will probably have to write off whatever you don't recover as bad debt. If your company structure and accounting regs dictate that you have to write off losses in one year, you'll want to try and contain the loss to not exceed your net profit for the year. If you can take it over a series of years, at least you'll be able to write it off completely.
All this would be good to know when you approach them to attempt to settle up as their first offer (and likely their final offer as well) won't be for the total amount and knowing what you need to recover as a bottom line will make the negotiation a bit less open-ended for you. rest assured, if it comes down to attorneys, you will simply incur more costs and just be at the end of a long line of creditors when they file for protection...and they know this as well.
We've been on them since May to bring accounts up to date so this isn't the first we've discussed this, either internally or with them.
Also..I should point out that up until about Feb. or March they paid on-time. So when bills starting getting to 60 days, (which started in April or early May), we began sending out notices and discussing it with their Dir. of Advertising and their production coordinator, who takes care of getting our bills to accounting.
Additionally, they've paid us approximately $400,000 for services since about Sept. last year, so this isn't a case of a client that had us do a project and then stiffed us on it.
That said...I agree with you as well as everyone else. The "Fed-Ex" thing really made us realize we have to take immediate action. And we already have our accountant looking at various scenarios concerning write-offs. As for our attorney, we avoid getting them involved in things until it's absolutely necessary. Heck, they charge us a 1/4 hour of billing if we call and say "hi" to them.
I just wanted to make sure what we were planning was appropriate, as well as get some ideas from others who have experienced this.
Magnetic Image, Inc.
Slam it shut, and direct all further correspondence to the company ceo/owner, certified mail, with signature.
When the phone starts ringing, stay dead calm. Respond to nothing they say, except to say: "we're glad to work out a paymanet plan for you to get your outstanding bills paid, but until we've cleared this huge debt, we can't do any more work, and we can't release any materials. Its just business. In fact, we're needing to erase some drives to make space for a paying customer. We'll take a certified bank check for x amount to settle the immediate past-due balance."
Any/All new work for them is done on a cash in advance/cash on delivery basis. The checks must clear FIRST.
Archive all project files and source materials and box them up for storage.
Surrender no tapes or dubs unless they are watermarked "approval copies" with a time code window burn across the middle or upper third. Get a receipt for each one handed over.
Notify fedex you no longer accept charges from this client, insist on all future shipping being prepaid by them. Refuse to accept deliveries billed to you.
Assume the money is gone. Assume this client is burned and will never come back. Assume a small claims fight for the tapes at least. Assume you are not the only one they have been doing this to, and that you will not be first in line to collect anything if they go broke.
Now you are free. Free of guilt or remorse. Free to do whatever must be done. Be firm, never falter; grinders prey on weakness, guilt, and second chances. All the leverage you have is in that footage. If they really need it to make their money, they will find a way to pay you. If too much time goes by, the footage becomes worthless to everyone. You just have to wait them out now.
Hi Chris -
boy, I am almost never on this forum. It's good to talk with you.
Ron Lindeboom wrote a CLASSIC article on Grinders, that I think about all the time. Its a MUST READ. I am in the land of infomercials, and your experience is commonplace here in Florida - the land of "buying some swampland cheap !". Do you really need to hear "gee, don't work for them anymore, and collect your money".
You know what to do, and you have received the proper advice from so many of the replies. There are plenty of people out there in every industry that seek out "suckers" that will work for free, based on a promise. No one is able to avoid this type of client, at least once in their career.
These guys are a little different in that we have been paid almost $400,000 in the last 9 months on projects, with most of that being paid on-time. It's only in the last 3-5 months that the payments have gotten slow. But it's certainly no coincidence they're struggling financially in this economy. It will all be resolved one way or the other very soon.
My hope is they pay it and we continue doing work...even though they are classic "grinders." If they pay on-time, it's constant work, they never budget or discuss fees, and they make SO many changes to spots, the billing can be phenomenal.
I did read the "grinders" article a while back and had to chuckle because it's so true. Luckily, in 12 years most of our clients have been excellent. This is only the second one we've had like this and funny enough, they're both VERY large, nationally known companies! Even the director of advertising was the same at these two companies, although he's not the common link between their poor management. It's the owner/CEO. They're both classic egomaniacs that got lucky with a concept and still run the companies like they're the local corner gas station. We have local retail clients that run their marketing and advertising in a more sophisticated and intelligent manner.
I'll give you an example. We'll spend a month shooting, editing, revising, then revising some more a series of spots for a promotion. They'll pay a celebrity doctor to go on camera and endorse the product or service. Then, they'll place the spot, and if after ONE day the call volume isn't higher than the previous weekday or previous month or previous year, the owner will quite literally pull the entire campaign! No...stop laughing...I'm serious. The owner pulls all the strings and makes all the decisions.
Another example: they'll introduce a new "revolutionary" product. In one case, it was actually a VERY good product developed by the USDA that they licensed. They did the same thing, spent a ton of money producing spots, ran them for 3 days, then dumped the campaign because call volume was down over the previous like periods. And keep in mind they spent a small fortune on packaging and inventory for this stuff.
With this particular promotion, when we asked about the product's status (we produced spots that never aired) they told us they were discontinuing it. Then last week...they ordered up a NEW TV spot promoting this product again. We said, "I thought it was discontinued?" Their ad director said, "I thought it was too!"
So that should give you some idea of what we're dealing with. If I wrote a book detailing the stuff that goes on, nobody would believe it. It would be like the silly workplace sitcoms on second tier cable TV networks. Except now I don't think those sitcoms are so silly after all!
Anyway...I'll update this thread in a week or two as things shake out.
Thanks for all the comments.
Magnetic Image, Inc.
Wanted to update this thread. It's been a month and in that time we eventually had to threaten to suspend work and withhold uploads of the client's spots. Within a day we had a check for $50,000, and a week later a second check for $50,000. The Dir. of Advertising has promised to stay on top of this and get us paid weekly. The client is now current with billing although they have another $100,000 in billing coming to 30 days early next week.
We're still doing work and incredibly, the last month was the highest billing month we've ever had with them despite this economy and their recent troubles.
Their business appears to have stabilized with no reports in the last 3 weeks of any additional store closings and no reports on franchise websites or blogs of any additional future closings.
Unfortunately, this has strained our relationship with their Dir. of Advertising, who is undoubtedly under tremendous pressure of her own without the added stress of our billing issues.
It has also damaged the enthusiasm people in our office have for the work they're doing for the client. We still want to do good work, but we used to do ANYTHING to get this client's work out the door and ensure it was well-done. That attitude has naturally cooled some after all this.
We've also recently gotten LOTS of questioning about piddly line items in our bills...like scriptwriting charges, which are typically 2-3% of total billing. Very odd indeed considering each spot goes through about 8-12 revisions (which include re-writes).
So we'll "ride the pony" as long as it's still kicking and see where it takes us. We've discussed internally dumping the client after the first of the year, but in this economy, we're not sure this would be a good move. We're seeing cutbacks in several of our other big clients so coupled with that, dropping our largest client might not be such a good idea, even if it did mean more sanity and joy in our lives!
Magnetic Image, Inc.
I updated this thread exactly two weeks ago with seemingly good news. Unfortunately, I was premature! Today we learned that the client in question is shutting down the franchise corporation and all corporate stores. All but a handful of 70 or so corporate employees were unceremoniously let go today, including the VP of Advertising, who we worked with.
None of our contacts knew what was going to happen to the remaining franchise stores, but it's unlikely they could continue without the support of the Franchise Corporation, which supplies them products, marketing materials and placed their media.
While we've received significant payments each of the last three weeks, we still have a sizable sum in current billing. Our corporate contacts told us, quote" "not to expect payment for those invocies."
So while we collected on all overdue invoices, we still had current billing from the end of September totaling quite a large sum.
One of our contacts at corporate said they were told the recent financial meltdown, along with the stock market nose-dive, prompted the sole owner and CEO of the company to "cut his losses" and shut down. As an aside, their CEO is a well-known financial figure in the Northeast who owned a prominent NBA sports franchise from 1982 to 1986. He's worth an estimated $50-100 million. So while he could easily afford to shut down this corporation and do it in an ethical and financially responible way. He's chosen not to.
Makes me feel all warm and fuzzy inside!
The good part of this story is we were able to collect roughly 85% or all the money owed for work we did over the last 10 months, and it was a sizable sum that overall made it worthwhile to take on the account.
We've also been through the loss of a large client before...back in 2004 when we lost a large retailer who, at the time accounted for about half our revenue. So we know how to survive the loss of a high-dollar client. Unfortunately, that always means reducing staff and possibly selling equipment. But you do what you have to do to survive.
Magnetic Image, Inc.