Last Word

Cutting Some Slack

When clients ask for more time to pay their debts, ask critical questions and consider the impact it would have on your company. BY MICHAEL DENSON

Among the more frustrating challenges that credit and collections professionals face are repeated requests, and sometimes demands, from customers for extended payment terms.

Making the right decision for your company involves a careful investigation into the reasons for the request, and how to respond.

First you must understand the “why.” Seek to determine if your client is going through a temporary cash flow problem, or if it’s permanent. You may learn that there is a change in the industry that is causing a general concern. Or perhaps the customer is making the request because everyone else is asking (and getting) extended payment terms.

Maybe the customer has adopted a new corporate policy that extends to all vendors. Or it could be that the request emanates from your sales department. Ask questions to get at the root causes.

FUTURE SCENARIOS

It’s vital to know how a given extendedpayment agreement will impact your company. Consider the size of the client company, and if there’s a chance that you might lose its business if you don’t agree to its request. Maybe you won’t lose its business entirely, but a sizable chunk. Conversely, maybe you might get more business from the company if your terms were more lenient.

As you contemplate those dynamics, take a look at the customer’s payment history over the past year or so. Has their payment history changed?

Scrutinize the last document that you received from the customer that specifically mentions your payment terms. This might be a signed credit application, agency of record (AOR) document, insertion order or a side letter.

The last document received usually supersedes all previous documents. Its content may indicate that the terms on you credit application are no longer valid. Verify this with your legal counsel, if necessary. Also, determine if there are any contracts in place that may have to be amended if you agree to extend the payment terms.

Ask others in your industry if they have been approached with the same request/ demand. If so, try to learn how they’ve

handled it. Belonging to an association like the BCCA or a credit group like the National Media Credit Professionals (NMCP) may prove very beneficial in getting information from your peers.

TO WRITE, OR NOT TO?

If you agree to extended payment terms, try to avoid putting it in writing. Some of our customers pay late as it is. A written statement may only cause further delays in payment. Push back and just say “no” whenever possible.

If that’s not possible consider adding a comment to your written communication saying that “in consideration for (your company’s name here) extending payment terms from ___ days to ___ days to be effective as of (date), (your customer) agrees to pay all late fees, collection and related fees as well as interest at the maximum monthly amount allowed by law.”

Your customer has already agreed to your payment terms when they first became your client, and similar language should already be in your credit application. However, how many times have we seen that fail to work or we just didn’t enforce it? An alternative comment to add to the communication could be something like: “If the revised payment terms are not strictly adhered to, the extended payment terms will be If you agree to extended payment cancelled with a 30-day written notice and the original payment terms will once again be in terms, try to avoid effect.” Your legal counsel can putting it in writing firm this up if you decide to use ... A written statement may only a clause like this. Adding a comment in a side agreement about extending the cause further delays payment terms is just giving in payment. you more protection. The agreement, whether sent by email or in the form of a letter, should be addressed to an officer or a financial person at the advertising agency and/or the advertiser. Their response should also come from that person with their full name and title on the communication. Bottom line, it’s always a business decision that you and the management of your company must make together. The more challenging part will be the follow up for payment when the new payment terms kick in. If you stay on top of your customer, they will see that you mean business, and hopefully they won’t take advantage of your generosity. Michael Denson is director of credit services for NMCP, which is managed in partnership with ABC-Amega. He can be reached at (716) 878-2860 or michael.denson@abc-amega.com.

MORE technique. MORE tact. MORE client retention.

When you know exactly what to do and exactly how to do it, you can be MORE successful. At Szabo Associates, we’ve spent decades learning and refining the tricks of our trade. So when clients come to us for help collecting media receivables, no one can do MORE than we can.

There is considerable technique and technology involved in collections. We have the largest media accounts database in the world containing information on over 600,000 media advertising companies. We can immediately access this data, check payment histories and patterns, analyze them and plot the exact strategy needed to maximize collection. No one else has MORE information and MORE knowledge on how to use it. Tact is equally important. This doesn’t come from a computer or a manual. It only comes from experience. Knowing when to be firm and when to be gently persuasive can make all the difference. Not only can MORE of the debt be recovered, but valuable client relationships can be preserved. At Szabo, our job is to recover your money without losing your clients. We have the technique, the tact and the experience to do both. It’s why Szabo can do MORE.

Szabo Associates, Inc. 404-266-2464 www.szabo.com info@szabo.com