DOING BUSINESS: Late Payments and Collections

By: Denise Gilmartin, VP, Business Affairs, AICP

On January 26, 2023, AICP held a town hall on Late Payments and Collections. The PowerPoint Presentation from the meeting can be found here. Since then, I have been asked to expand on some of the concepts from that presentation.

Steps to Take if your payment is late:
Before you send that first email or make that first call, review the contract’s payment terms.

Is the payment late according to the terms of the agreement? For example, if you agreed to be paid 60 days from delivery of materials, the payment is not late until day 61.

Does the contract contain sequential liability language? There are two ways that an agency contracts with a production or post production company: either as a principal, or as an agent for a disclosed principal, that is typically the named advertiser/client of the agency. If the agency is entering into a contract as principal then the contract is between you and the agency directly, and the agency is responsible for paying you in accordance with the contract’s payment terms.  The typical sequential liability clause, in addition to positioning the agency as the agent of the identified advertiser/client, also provides that the agency is not obligated to pay you until the agency has received the funds from the advertiser.   Therefore, if the advertiser hasn’t paid the agency, the payment obligation remains with the advertiser/client as principal. However, where the agency has received the funds from the advertiser, the clause provides that the payment obligation shifts to the agency and assumes that the agency in fact pays you according to the contract’s payment terms. If for any reason the agency fails to pay you (e.g. agency bankruptcy), then in theory, the advertiser/client should remain liable for payment.   In all cases, you should be paid in accordance with the contract’s payment terms.

Do you have the advertiser’s contact information? If the contract contains sequential liability, it may say to look to the advertiser for payment.  If so, you should consider including language in your contract that enlists the agency in the effort to collect payment from the advertiser:

“Agency shall diligently seek payment from its Client. In the event that Agency has not received payment from its Client as of any due date for payment to Producer hereunder, Agency shall provide to Producer the Client's contact information to enable Producer to seek payment directly from the Client.” 

Or you may want to add language that says:

“Agency represents and warrants that it has received funds sufficient to make [the first or full] payment required hereunder, and that Client has approved all of the commercial and payment terms, herein.”

A way to avoid untimely payments is to amend your contracts. Are you in agreement with the installment percentages and timing of the payments? Are you in agreement with the language? Instead of approval, it may be better to say something concrete like payment upon or X days from completion of principal photography or delivery of materials.  Some of the contracts have tricky language like “no sooner than” X number of days.  In this case if X = 30 days, that would mean the agency is only obligated to pay you AFTER 30 days.  There is no end date.  It could be years before you see the money and they still wouldn’t be in breach.  If you’re going with this language structure it should say “no later than” rather than “no sooner than”.

Is the Cost Consultant holding up your payment? Have they said they haven’t completed the review of your cost-plus documents?  Are they requesting more or different back up after the fact? If the contract language for Cost plus says X number of days after review or approval of your cost-plus actualization, that may the problem. It is advisable for the contract to provide the agency and cost consultant with definitive deadline(s) to review your actual. Make sure that the language regarding payment for cost plus items says X number of days from receipt of cost-plus actualization, rather than from approval of cost-plus items. 

Are you being told you aren’t being paid because the spot hasn’t been approved? Has it aired?  If it has, you might have language in your contract stating that use of the deliverables or materials by the agency or the advertiser constitutes acceptance.  If you don’t you might want to add the following to future contracts/purchase orders:

“Use of the Deliverables or Materials by the Agency or the Advertiser constitutes acceptance thereof by Agency and Advertiser.”

If your payment is for overages, are they in writing? Do you have language in the overage binding the agency to payment?  If not, you may want to consider language such as:

“By signing below Agency hereby approves all costs set forth herein, and such costs and this overage/change order agreement shall be binding on Agency and Advertiser, and [Production/Post Production Company] shall be paid no later than the date of the final payment to [Production/Post Production Company] set forth in the [production contract/purchase order].”

You might also want to add similar language to the production contract/purchase order such as:

“Once approved by Agency in writing, all such additional costs shall be binding on Agency and Client and shall be paid no later than the date specified above for the final payment to [Production/Post Production Company].”

Other Factors to consider:

Press. Is there something in the press that’s indicating that the agency or advertiser is unable to meet its payment obligations? Did the agency lose the advertiser’s account? Are you experiencing late payments from the same agency or advertiser on other jobs?  This is something you may want to consider before accepting the job.  If you do move forward, do you have enough funds in your line of credit to cover a potential late payment? Will you be getting paid for the outstanding invoices for the other jobs?  If you’ve already accepted the job, and the agency is unable or unwilling to pay you, request payment directly from the advertiser. 

Bankruptcy.  Is it the agency or the advertiser?  If it’s the agency request payment directly from the advertiser. 

Accounting Tools:

C.O.D. If you’re planning to do a job for an advertiser that’s in bankruptcy, or for an advertiser based in a foreign country, you might want to ask to be paid in full prior to/or on delivery.  It may be extremely difficult to collect from an advertiser, or sue an advertiser, based in a foreign country. In dealing with an agency or advertiser that is in bankruptcy, you should consult with bankruptcy counsel concerning the best way to structure the transaction and the special procedures that may apply to obtaining payment from the bankrupt’s estate.

Value Date the Wire. There are times when you must have payment by a certain date.  Perhaps it’s the day before your shoot, or you need to send the funds to the foreign production service company. If you’re a post production company it might be the day before you deliver. In those circumstances ask the agency to tell its bank to “value date” the wire with the date that you need to receive the funds.  This way the agency is held accountable for sending the wire, and the bank can’t hold your money in limbo before crediting your account.

Discount for Cash.  There is an old accounting term called 2% net 10.  It means that the client can take advantage of a discount of 2% off the invoice, if they pay the invoice within 10 days.  Those of us who were around during the film days may remember that Kodak utilized this practice, and it worked. Kodak was always the first bill paid so we could claim the discount.  If you didn’t pay the invoice within 10 days, it meant that you had to pay the invoice in full (i.e. no discount) within their regular terms which I believe were 30 days.  A company may wish to propose a variation of this approach when bidding jobs for clients who have extended payment terms, such as 60 - 90 days or other terms, to get paid faster and free up funds in their lines of credit.  If you’re going to utilize this practice it should be worked out in the bidding phase, rather than after award.

Finance Charges. Another way of dealing with late payments or protracted payment terms is to make the advertiser responsible for financing the project.  In those instances, following is language you may want to use in your bid letter and/or contract/purchase order:

“We shall charge interest at a rate of [___%]* on any late payment(s) as well as any payments made later than 30 days from the date of [production/post company’s] [uploading of dailies/delivery]; provided, that, notwithstanding anything in this agreement, the first payment shall be made no later than 3 business days prior to the [first shoot day/delivery]; provided further, that all of the foregoing shall be regardless of sequential liability.”

[*Actual rate, if any, is to be determined by company.]

If the agency is the entity suggesting protracted payment terms, such as 60 or 90 days, they may change their terms when presented with this language.  In any event, it is advisable to have language in your contract/purchase order to cover your costs should you need to go to collections:

“Agency or client shall be liable for all of [production/post company's] attorneys’ fees and costs incurred by [production/post company] for collection of late payments.”

An important point concerning all options described herein as “Accounting Tools” is that use of any tool is subject to individual company decision and to bilateral negotiation and agreement between you and the agency and/or advertiser.

Manage Expectations:
How do you avoid late payments to begin with? You should begin by managing expectations. You’re in a mch better position if you establish a good relationship with the agency and manage expectations rather than saying nothing and springing your policy on them the day before the shoot or the day you’re supposed to deliver. In which case you may want to add language to your bid and/or contract/purchase order that says:

“Agency and client acknowledge and agree producer shall not be required to deliver “deliverables” unless it has received the first payment due hereunder regardless of sequential liability.”

For more information on sequential liability, cash flow, and cost plus, please see AICP position papers on our website.

If you have any questions regarding this article or any other business affairs issue, please contact me at deniseg@aicp.com.

This information is designed as a service to AICP Members and is intended only to provide general information on the subject covered and not as a comprehensive or exhaustive treatment of that subject, legal advice, or a legal opinion. Members are advised to consult with legal counsel and other professionals with respect to the application of the subject covered to any specific production or other factual situation. Use by a company of any of the options and provisions discussed herein are matters of individual company decision in accordance with its own business needs and nothing contained herein is intended to suggest agreement among AICP members or the adoption by the AICP of a uniform position concerning the content of this Bulletin.