Earlier this year, SHOOT reported that the AICP revised its Guidelines to address concerns in the production community about late payment by advertising agencies. The AICP now recommends that production companies assess finance charges on all payments that are more than thirty days overdue.
There is no doubt that late payment is a serious problem. When production companies are owed substantial sums of money for long periods of time, it puts their businesses at risk. And having to borrow in order to finance productions, while waiting for payments that are long overdue, reduces the profitability in a business where profits are already shrinking.
Bringing attention to the problem is important. And this change to the AICP Guidelines should spark lots of discussion between production companies and advertising agencies. But will it work?
Why do agencies pay late?
Advertising agencies typically wait until they have received payment from the client before making payment to the production company. Not surprisingly, agencies worry about cash flow as well. Some clients don’t pay on time. Some clients won’t make payment until long after a production is completed. As a result, when advertising agencies are waiting for payment from their clients, that delay just gets passed on. Another common problem is that, for any number of reasons, agencies and clients often just can’t process invoices quickly enough to make payment in thirty days.
Will imposing finance charges work?
Finance charges certainly may help alleviate the problem. Having the right to charge penalties for late payment — and then imposing them when necessary — should serve as an incentive to pay promptly. There are two major challenges to implementing this, however. First, many agencies will never agree to pay them. Advertising agencies, which are typically acting as agents for their clients, will not want to ask their clients to pay finance charges. Second, even if finance charges are included in the production contract, will the production company really want to impose them? You have to be pretty tough (and be willing to risk the relationship) in order to go to an agency, that you hope to get work from in the future, to ask for finance charges. If imposing a finance charge is not going to work for you, what else can you do?
Go into jobs with your eyes open. Regardless of what the production contract says (which you should examine carefully as well), have an honest conversation with the agency about when they really will be able to pay, and make sure that you’ll be able to live with that. Consider whether you have had payment problems with the agency in the past. Talk to other production companies about the agency’s payment history. If the agency is typically only paying after sixty or ninety days, or even longer, then you should factor that into your decision about whether to do the job.
Take an agency’s payment terms (and payment history) into account when bidding the job. If you’re not going to get paid in thirty days, then you should consider whether it’s possible to address this in the bid. If you are going to have to finance part of the production, can you increase your markup? If not getting paid for ninety days after the production is completed is going to create cash flow problems, can you ask for more than fifty percent up front?
Most importantly, production companies and advertising agencies need to continue to have an open dialogue about late payment. Agencies value their relationships with production companies — and value their contributions to the productions. If they can produce great work together under the toughest of conditions, there’s no reason why they can’t figure this one out as well.
This column presents a general discussion of legal issues, but is not legal advice, and may not be applicable in all situations. Consult your attorney for legal advice.
Jeffrey A. Greenbaum ESQ. is a partner at Frankfurt Kurnit Klein & Selz, New York. If you have a suggestion for a topic to be covered in a future column, send an e-mail to jagreenbaum@fkks.com
