Firms Get Tough about Non-Payment

Article excerpt

Firms get tough about non-payment

Stronger precautions, willingness to sue sends clear message to delinquent clients

An increasing number of public relations firms, burned in recent years by clients who refuse to pay their bills, are taking steps to protect themselves from bad debt. Firm executives say they've learned the hard way that not all clients respect a written contract, and are now requiring clients to pay fees and expenses in advance, tightening up the language in contracts, keeping closer tabs on accounts receivable, and performing more thorough financial checks on prospective clients. Many, in fact, say they now operate by a new philosophy: "No pay, no work."

"You've got to watch your receivables very carefully," says Alex Stanton, APR, president of New York-based Dorf & Stanton Communications, whose firm recently sued a former client charging non-payment of nearly $50,000 in fees. "Contracts are really only valuable if you're dealing with honorable people."

Lawsuits on the rise

Non-payment for public relations services is an ongoing problem, practitioners say, although not rampant or grievous enough to put many firms out of business. One source interviewed by PRJ, however, citing an extreme case, said that a friend who had worked in public relations for 15 years left the field recently "after being burned one time too many."

As a result, a growing number of firms are now taking a more aggressive stance in their efforts to recover outstanding fees. Lawsuits against former clients, for example, now appear to be on the rise. Indeed, firms have become less reluctant to make such disputes public.

In November 1989, for example, "Jack O'Dwyer's Newsletter" reported that six public relations firms were involved in litigation with clients who refused to pay bills ranging from $6,000 to $107,500. But many firms, especially small ones, say that legal fees are far too high to make filing a lawsuit worthwhile. While some firm executives stress that they turn to the courts not only to recover money, but also on principle, most admit that they prefer to settle out of court.

"This is something we do as a last resort," says David Braff, president of New York-based Braff & Co., who recently filed a lawsuit against Heublein Inc., charging the Farmington, Connecticut-based company with not paying $30,641 for marketing and public relations services for "Tropicfreezer," a frozen alcoholic drink. "You have to let clients know that you're not in a position to let this type of thing go by. And from an agency point of view, it's important to know that we have teeth." Braff refused to comment specifically on the Heublein case. Steve Goldstein, a Heublein spokesperson, confirmed that a lawsuit had been filed, but provided few details. "Because litigation is pending," he said, "I prefer not to get into it." Goldstein alleges, however, that no written contract was signed and that the "program proposed was never realized."

Why firms sue

Although most public relations firms and clients currently involved in litigation refused to comment on the circumstances leading up to their legal battles, a few outlined their general contentions:

* The principal of a two-person firm, speaking on condition of anonymity, says he agreed to a one-year contract with a financial company to promote a new penny stock. The company, he says, sought placements in major business publications, such as The Wall Street Journal, despite his repeated warnings that it would be extremely difficult. In the end, placements were made in "high-profile" trades, including a cover story in a penny stock newspaper, the firm owner reports. Six months later, the client's seed money dried up and payments to the firm stopped. The firm sued the penny stock company for $5,000 in back fees.

* Dorf & Stanton's suit concerns a 12-month contract that it is signed with Books-By-Wire International, Fort Lauderdale, to promote the launch of the start-up company's innovative venture: delivering books as gifts, following the floral industry's example. …

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