An invoice is a piece of paper or a PDF; it doesn’t keep your lights on, your employees paid and or let you sleep any better at night, that is, until it comes back to you in the form of payment.

There isn’t one client I’ve worked with that doesn’t care about getting paid on time. Unfortunately, there also isn’t one who doesn’t deal with this issue on a regular basis.

Cash flow issues cut to the core of agency business. For multiple and sometimes obvious reasons, clients – especially enterprise-sized clients – expect payment terms from agencies that stretch out as long as possible, and they don’t want to pay any fees or interest for the privilege of making your agency wait for its hard-earned dollars. They frequently default to requesting (demanding) terms as long as 90-120 days, which is completely unmanageable for most agencies. 

Even the best of client relationships can go sour (or in the least get really awkward) when the billings back up and the past-due statement grows longer. 

Setting the right tone in the client relationship on money matters starts at the beginning of your engagements, including the right language, terms, and clauses in your agency-client contracts.

The following are five ways – from your Agency’s legal perspective – to turn the odds in your favor in getting paid on time:

1. Interest – Seek to negotiate payment terms that are as short as possible, and charge interest for payments out of term at the recommended 1.5-2% per month. The ability to charge interest must be clearly written in in your services contract, or you won’t be able to recover it.
2. Collection Costs and Attorneys Fees – Include contract language on reimbursement for the agency’s out-of-pocket costs associated with fee collections. Courts will not enforce these terms unless they appear, specifically, in writing.
3. Early Payment Discounts – While this is as much a business matter as it is a legal matter, if your agency wants to extend this to clients as incentive for early payment, it needs to be in the contract.
4.  Work Cancellation Clauses – Your Agency needs to have the flexibility to stop work and hold on to assets or work in progress in the event of delinquent payments or non-payments.
5. Hold IP Until Full Payment – In addition, your Agency should not transfer intellectual property rights in work it creates for the client until receipt of payment in full.

As you can see, most of the hard work here is handled in the drafting of the Master Service Agreement or Terms and Conditions between your agency and its client. This is one critical argument in favor of having your own standard contract documents as an agency. But even if you work with a contract form that your client presents, the time to negotiate and document these safeguards is before signing on the dotted line, and this is your “punch list” to help accomplish that.

In short, set clear expectations upfront with open communication, and get everything in writing in the contract to increase your chances of timely payments, avoiding uncomfortable conversations, and keeping your client relationships intact for the long-run.