Solid Contracts Can Aid Customer Relations

In my last column of 2013, I suggested it would be a good idea to make reviewing your station’s credit policies a New Year’s resolution.

If you are in need of an additional incentive to make this more of a priority you might want to read Steve McClellan’s report on the status of media buying firm KSL, which filed for bankruptcy protection last fall.

In its latest filings with the courts, the company disclosed that despite hiring a forensic accountant to reconstruct its books, it is “unaware of the identity of any reliable third-party media claims reconcilers that could finish the Debtors’ claims reconciliation process.”

“Essentially, the firm said, its books are in such disarray that it ‘cannot determine specific amounts owed to any particular creditor.’ It has estimated however, that total debt amounts to approximately $100 million,” McClellan reported.

As this latest wrinkle in the KSL suggests, it is imperative for media providers to establish and maintain accurate documentation concerning monies they are owed by an advertiser or agency.

But the reasons for doing so encompass not just those situations where you might need to seek payment through a court order. Alex Rosen, president of sales and the in-house counsel for American Financial Management, a commercial collection agency that specializes in the media industry, believes using the right legal documentation is fundamental to customer relations.

“An important goal for all media providers should be to foster a long-term relationship with every advertiser, agency or buying service. To achieve that, it’s imperative for you and all other sellers to define your payment expectations in an agreement,” Rosen says.

In a “Where Credit is Due” column appearing in MFM’s The Financial Manager  magazine, Rosen goes on to point out that establishing clear payment terms “will reduce the number of disputes and bad debts, which, in turn, will result in your company not having to expend as many resources to recover monies owed.”

“However,” notes Rosen, “if the customer decides not to pay on time, you will maximize both the amount of monies received and the likelihood of recovery by including specific language in the credit application and/or contract to ensure there is a clear understanding of the terms to be provided.”

As part of reviewing the contracts your station uses when selling media, Rosen suggests using your industry experience and try to think as if you are the customer. “That will help reduce as many typical disputes as possible.”

In addition, Rosen believes that your company “has significant leverage over the customer regarding the structure and terms of the contract” because your advertisers need your services to grow their business.

It is also important to understand what can be considered a legally binding agreement. Rosen asserts, “Although inaccurate, many customers believe that a contract can only be formed if it is signed and in writing. However, a contract is created when there is an acceptance of the terms of an offer in a manner invited or required by the offer.”

“Specifically, a contract can be formed by written or verbal communication; through performance entailing no communication, or by any other reasonable manner described by the offer.”

As Rosen observes, most media providers require customers to enter into a contract or credit application, which defines the terms of the relationship and then accept customer purchases at a later date. He provides the following tips concerning these customer agreements:

• The initial contract should state the manner in which purchases can be made.

• It should also make clear that all purchases will incorporate the representations and warranties, covenants, terms and provisions of the contract.
• A media provider should ensure that the customer acknowledges and agrees to the following four items in writing, even if these items are also disclosed in the initial customer contract:

1.  
   1. Their obligation is not dependent upon the results obtained.
   2. The contract or credit application defining the terms of the relationship controls this advertisement purchase.
   3. He or she, as the representative of the customer entity, has the full and complete permission and authority of the customer — on whose behalf he or she is entering into this purchase — to bind the customer according to the provisions in the original agreement.
   4. They are entering into a binding, legally enforceable contract.

Because many customers don’t believe the fourth point is possible, Rosen says it is imperative to obtain written confirmation from customers agreeing to it. “Remember,” he warns, “the customer is the one who decides whether or not to pay their obligations.”

Since the credit application and/or contract is likely to be used in situations when it becomes necessary to involve a collections agency or attorney, Rosen says it is also important for these documents to contain such customer information as:

• The entity name, structure and status.

• Both the work and personal contact information of the authorized representative.

• The customer’s banking account information.

Given its role as document that will be used in the event of a payment default or if the matter escalates into legal proceedings, Rosen says the contract should state the credit terms, finance charges and make clear that the customer is solely responsible for any and all collection costs, attorney fees and court costs.

In his opinion, “The exact percentage of those expenses should be stated in the contract as it is much more likely that a judge will grant the media provider’s request to have the fees and costs included in a judgment award if they were agreed to by both parties.”

In the spirit of Rosen’s advice I should mention that the BCCA task force which developed EMCAPP — the Electronic Media Credit Application — had the same objectives in mind when developing that tool. Members understood that the documents used to govern credit and collections terms are fundamental to the relationships developed with advertiser and agency customers.

This is why we worked so closely with the advertising community as well as our own members to come up with an application that would both meet the media industry’s need for a good credit application while, at the same time, providing advertisers the no charge opportunity to streamline the process by completing one application that could be used by multiple media outlets. If you aren’t familiar with how EMCAPP can help to improve your customer relations programs, I encourage you to explore its Web site (www.EMCAPP.com) and take advantage of the remaining months of our free trial.

Interestingly, one of the EMCAPP Task Force members commented that if EMCAPP had been available before the KSL bankruptcy, it would have made his job a lot easier. Among its terms are requirements that advertisers also create an application (which would have given him contact information for each advertiser) and the requirement that agencies keep accurate records of monies owed to media providers.

While we hope that the New Year won’t involve situations media providers need to deal with the legal language contained in credit applications and/or advertising contracts, KSL’s bankruptcy proceedings remind us that there is always that likelihood.

With that in mind, MFM and its BCCA subsidiary, the media industry’s credit association, are offering a distance learning Webinar to address “What Every Media Credit Manager Needs to Know About Bankruptcies” on Thursday, Jan. 16, from 3:30 to 4:45 p.m. ET.

Led by C. Robin Szabo, president of media collections firm Szabo Associates, the CPE (continuing professional education) webinar will provide an overview of Chapters 7, 11, 13 & 15 bankruptcies, provide tips for conducting business with customers under bankruptcy protection as well warning signs of impending bankruptcy and offer participants the opportunity to ask specific questions.

While it is our sincerest hope that the New Year doesn’t involve situations where you must use a collections firm or the courts to collect payments from an advertiser or agency, it is our ongoing mission to provide the tools and guidance media financial professionals need to do their jobs better no matter what the business throws their way.

Speaking of legal guidance, I am reminded to mention that the recommendations included in this article are not intended to be used as legal counsel and to encourage you to consult with your attorney when reviewing the language and terms of your advertiser agreements.

From all of us at MFM and BCCA, we wish you a prosperous 2014.

Mary M. Collins is president and CEO of the Media Financial Management Association and its BCCA subsidiary. She can be reached at [email protected]. Her column appears in TVNewsCheck every other week. You can read her earlier columns here.