Agency Leadership Podcast

Handling early client contract terminations with finesse


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In this episode, Chip and Gini discuss how to manage situations where clients want to terminate contracts early. Gini emphasizes the importance of having a strong contract with clear termination clauses, which can serve as leverage in negotiations.

They share experiences and strategies for recovering outstanding invoices, including offering concessions and being flexible with payment arrangements. The duo also cautions against aggressive tactics like public shaming for non-payment and stresses the importance of maintaining professionalism to avoid burning bridges. They conclude with practical advice on managing accounts receivable and resolving disputes amicably.

Key takeaways
  • Chip Griffin: “If you look at a contract as a tool rather than a rigid roadmap, I think that’s the most helpful way to think of legal agreements in the agency client context.”
  • Gini Dietrich: “Overall, you don’t want to burn the bridge with clients.”
  • Chip Griffin: “What you really have to do is figure out how can you get the best possible outcome at this point?”
  • Gini Dietrich: “Keep in mind that these are people who are going to refer business to you.”
  • Related
    • Getting agency-client contracts done right
    • How to protect yourself from an unexpected client breakup
    • How to do client collections right and get paid faster
    • 6 reasons why your agency needs client contracts
    • The basics of agency-client contracts from a business perspective
    • View Transcript

      The following is a computer-generated transcript. Please listen to the audio to confirm accuracy.

      Chip Griffin: Hello and welcome to the Agency Leadership Podcast. I’m Chip Griffin.

      Gini Dietrich: And I’m Gini Dietrich.

      Chip Griffin: And Gini, we have one of your favorite topics today, but it’s one that, that we haven’t visited in a while, so it’s, it’s probably worth revisiting. Okay. And, and, and that is, how do you handle it when you have a client who wants to end their contract early?

      Gini Dietrich: Well. As we all know, I am a stickler for the details when it comes to this, and we have very specific language in our contracts. Our attorney helped me create something beautiful that is a 90 day termination clause. Almost never does somebody sign 90 days. They use, it’s usually a negotiation point, right?

      It’s, we get it to 30 or 60, whatever. I use it for negotiation. Sometimes the client signs the full 90 day contract. I have had a situation where a client called me at the end of the month and said, we are terminating the contract as of today. And I said, great. There are two outstanding invoices, and by the way, you have a 90 day termination clause.

      And they came back and said, and I said, but if you’ll pay the the outstanding invoices by the 15th of the month, then I will happily waive the 90 day termination clause because I know you’re, it’s cashflow and I know you’re having a tough time right now. They came back and said, no, that I’m not being a good partner.

      Chip Griffin: So to clarify, they don’t want to pay for services already rendered?

      Gini Dietrich: Correct.

      Chip Griffin: That seems unreasonable under any circumstances.

      Gini Dietrich: I agree.

      Chip Griffin: So I think that from my observations of having had these conversations with you now for what, seven or eight years now on this show, you’re being particularly reasonable.

       Especially for me.

      Yes. That’s what I’m saying. You, you personally are being particularly reasonable Uhhuh, because usually you are much more hardcore than I am

      Gini Dietrich: Yes.

      Chip Griffin: On these things. Yes. I think that’s fair to say it is. But what you’ve described is. Is something that I would typically offer to a client. Settle your debts and we can just part ways amicably.

      Gini Dietrich: Yes.

      Chip Griffin: And you are also, I think, the only agency owner I know of who has ever sued a client. I’m sure there are others out there, but I don’t know them personally.

      Gini Dietrich: It’s the principal.

      Chip Griffin: Yeah. Yes. We, we know that you, that you thrive on making the point.

      Gini Dietrich: I do.

      Chip Griffin: So, so it’s

      Gini Dietrich: Fair is fair.

      Chip Griffin: So you’re clearly. Going soft.

      Gini Dietrich: I’m, I’ve, I’m getting older.

      I’m, I’m getting older, and I understand that this is not worth pursuing. I would like our past due invoices to be paid, and I will happily waive the 90 day clause. If, however, you don’t pay us by the middle of the month, then I’m not waiving the clause on the contract you signed.

      Chip Griffin: Right. So let’s, I mean, let’s extrapolate or not extrapolate, let’s, let’s step back and look at this at a higher level rather than your particular individual case.

      We can use that as an example. Sure. But I think that, that there are a few key points that come out of this that could help other owners. And, and I think the first one is the way that you are using the contract as a tool to get leverage to get a solution that you’re happy with, right? It’s not that you’re abiding by the contract.

      Right down to the last crossed T and the last dotted I, you are willing to make concessions, right? But by having a strong contract, it gives you the leverage in that negotiation to be able to trade something, the unpaid invoices for the lengthy notification period. Or not lengthy, but the the 90 day notification period.

      Gini Dietrich: Right, right. Yeah. I think that’s right. And I think having that leverage helps And you, you have, you have to find ways to be able to have that leverage. Like, you know, web forms won’t deliver a website until you’ve paid their last invoice. Same thing. Like what do some things, if a client’s not gonna give you any notice and they did not give us any notice, they called us on the last day of the month.

      If they’re not going to give you any notice, then what is your leverage to be able to get the invoices paid, in a timely manner? And you know, if they’re saying, well, we can’t pay for 60 or 90 days, or they’re saying We’re not gonna pay it all. There’s things that you need to have. So I think your point about having a contract that has that language in it that they have signed and agreed to, gives you some of that leverage.

      Withholding work product gives you some leverage. So there are some things that you can do, but you have to have that all set up. You know, you always talk about sort of the prenup. What happens if you get divorced from a client, right? What are the things that are gonna protect you in that, that situation?

      Chip Griffin: Yeah. And, and I think if you, if you look at a contract as a tool rather than a rigid roadmap, I, I think that’s, that’s the most helpful way to think of, of legal agreements, at least in the agency client context. There are obviously other places where it is that rigid roadmap and Sure. And you’re not gonna do anything about it.

      I mean, you try having a negotiation with, I don’t know, your car lender, you know, it’s probably not gonna happen. They’re probably just gonna sit there and say, you know, you signed the 27 page agreement.

      Gini Dietrich: Right.

      Chip Griffin: Pay up.

      Gini Dietrich: Yes.

      Chip Griffin: So, so you know, but in, in an agency client relationship, the, the contract is that tool to help resolve the challenge in some sort of a reasonable way.

      And I, and I do think that it is particularly unreasonable when clients call at the end of, of a time period and say, we’re ending immediately. I mean, that’s just – Regardless of what your contract says, that’s just it. It’s bad behavior. Yep. And, and I don’t appreciate seeing it. And it tells me a lot about either the individual or the organization or sometimes both.

      Yep. And, and so certainly not something you ever wanna see. Having a contract can help you find a resolution to that. Although, I will say at the same time, when you have people who engage in that kind of behavior, it sometimes ends up being a lost cause candidly. Because if, if someone is willing to do that, then they may have no issue at all just leaving invoices unpaid, and then your only recourse is to sue, which you can do.

      Sure. You’ve proved that. Yes. And, and yet most of the time it will cost you more time and money than you actually recover.

      Gini Dietrich: Yeah, for sure. Yes, I have. I have learned, I have grown. I have, and sometimes there are situations where I’m okay spending the money to prove my point.

      Chip Griffin: Well, and, and sometimes, and there are other options. You can sometimes turn, turn these over to collections groups who will take a percentage of whatever they are able to recover, you know, that. And they, they just turn into the obnoxious collections agent and just Yep, keep calling. You know, that’s not something I’ve ever pursued, but I know some, some owners who have gone down that route, with mixed success.

      So. You know that there are things that you can do, but generally speaking, your best bet in my experience is to try to work something out in as

      Gini Dietrich: Yeah.

      Chip Griffin: As friendly a way as possible. Yeah.

      Gini Dietrich: Yeah.

      Chip Griffin: But it’s, it’s also a good reminder to, to stay on top of your accounts receivable. In your case, two months is, is not terrible.

      There are plenty of cases where I’ve worked with agencies who have much larger debts owed to them by clients. Yes. And, and what I always tell folks is, you know, whatever you have for outstanding invoices, you have to assume you’ll never get paid. Because there’s just, you know, particularly once they cancel, now you’ve got no leverage left, right?

      Because what are you gonna, the only thing you have at that point is a lawsuit.

      Gini Dietrich: Yep.

      Chip Griffin: That’s not particularly helpful

      Gini Dietrich: right

      Chip Griffin: Now I have seen a lot of suggestions in places like candidly, the Spin Sucks community, where people have suggested. Some creative,

      Gini Dietrich: very creative,

      Chip Griffin: but I think very impudent

      Gini Dietrich: correct

      Chip Griffin: ideas.

      Gini Dietrich: Yes.

      Chip Griffin: For how you deal with deadbeat clients.

      Gini Dietrich: Yes, yes.

      Chip Griffin: For example, I think one suggestion I saw, I forget whether this was Spin Sucks or somewhere else, was basically taking out a billboard in a community attacking a company for not paying.

      Others have suggested putting them on blast and just posting all over social media like you see people do when they’re upset about some treatment by the airline or something like that.

      Gini Dietrich: Yes, yes.

      Chip Griffin: These are bad ideas folks.

      Gini Dietrich: They’re bad ideas. Actually, I just saw somebody put a company on, on blast on social media because they weren’t paying their bills, and I was like, well, that’s one approach.

      Chip Griffin: I, I mean, the thing is you have to look at this through the lens of the recipient. I mean, you’re, you’re escalating dramatically with them once you go public, right? With something like that. And so now you know, you think you’re putting pressure on them, but the exact opposite may be true.

      You may be stiffening their spine to say, You know, I didn’t like working with these people anyway, and if they’re gonna behave like this, right? Because keep in mind we sit there and, and, and we look at a client who is canceling with little or no notice, not paying bills. We look at them as the bad guy. But oftentimes if you talk to them, that’s not how they see it.

      Sure. And, and so, and they may think in their mind, well, geez, this agency didn’t live up to their promises. They didn’t do what they could, or they don’t understand and appreciate our financial troubles that, you know, and, and we just, we don’t have it. We can’t pay it. It is what it is. And, and so, so they don’t think that, and so you going on the, the attack publicly right now just makes them think.

      Even better of themselves and worse of you and, and takes you further away from resolution rather than closer. I mean, certainly in some cases it might work, but I, but I would argue more often than not, it’s probably not going to. But the other thing you have to think of is how are other people perceiving this?

      Right. Prospective clients. Yeah. Who might be inclined to work with you. Yeah. If they’re looking at this, they’re saying, geez, you know, if it doesn’t go right with them, this is how they treat their clients? Yeah. I don’t, I don’t know that I wanna work with them. Yeah. So, so you gotta be really careful with these kinds of, of tactics because scorched earth usually burns both sides.

      Gini Dietrich: Absolutely. And I, I mean, there’s something to be said for not burning a bridge, you know, and sure, certainly there, there may be instances here and there over the years that you, it’s okay to burn the bridge, but overall you don’t wanna burn the bridge. And, you know, I, I think that that’s the case. As I’ve grown and matured, that’s one of the things that I’ve learned is, yeah, could I prove, could I sue them and prove my point?

      Sure, absolutely. Is it worth it? Probably not.

      Chip Griffin: No. And, and so, so what you really have to do is figure out, you know, how, how can you get the best possible outcome at this point? And so, you know, in your case, trying to trade the outstanding invoices, you know, for waiving the notice period is, you know, probably the, the first and most obvious thing that you can do.

      But I would also say in these cases, try to collect as much as you can, however you can. Yeah. So, so sometimes what you might do is you might say, well if, if you can pay one of the invoices by this date and the other by a later date, you know, that will then, so ’cause that sometimes can encourage that first payment to come in or break it up.

      Mm-hmm. You know, break it up into four monthly installments even though it’s two months worth of there. There’s a lot of different creative things that you can do so that you are mitigating your exposure and, and collecting at least some of it. And I think one of the mistakes that, that I’ve seen people make in circumstances like these is it becomes all or nothing.

      Yeah. And so the, the focus is purely on getting the total amount owed. And, and I would strongly encourage you to try to, if, if you certainly start there, but if you can’t get that right away, then try to figure out how can you, you know, start carving out at least some of that past debt for two reasons.

      One is it does reduce how much you’re out at the end of the day. But the second is it starts to, to build the expectation in the client that they will continue to pay up, right? And so, so getting that first payment across often will help you get to the later ones. Maybe not to all of them, but at least to subsequent ones.

      And so, you know, you want to think creatively about this and, and not cut off your nose to spite your face because you just, you wanted it all.

      Gini Dietrich: Yeah. And I, I would say to that end too, that many of us have, interest clauses in our contracts. I never hold clients to that either. Like if I, if I can split it up into four payments or, you know, five payments, whatever it happens to be and get and not charge interest for them being late, like, but I get the money eventually.

      I that, I’m fine with that.

      Chip Griffin: Yeah, I mean the, to me, the interest clause is, is really just another lever for you to use. I certainly know agencies who do charge the interest. In some cases I know them, that they, they’ll start it like on day one of being late. I, you know that that’s not.

      My approach to it. I, I think that, that you, you can lead to clients feeling like they’re being nickled and dimed for things like that. Sure. Yeah. But the other thing frankly is that there is, a fair bit of, of research out there that suggests that things like interest in late fees and all of that actually encourages late payment. Sure. Yeah. Before the be, you know, there was a, I remember there was one particular study of a daycare. And the, the daycare was frustrated that parents kept, you know, showing up after five o’clock or whatever to pick up their kids. I remember the staff had to wait around and so they started instituting a late fee, and rather than fixing it, it actually made it worse.

      Yes. Because then people started saying, well, okay, I’ll pay the extra 50 bucks. Right. You know, so that I don’t have to show up until like seven. Yes. Yes. And, and so what they, because, so sometimes those kinds of, of penalties actually serve as permission to engage in bad behavior. So, so something to, to keep in mind when you’re using things like that is that, that you may not have the expected consequence of things like that.

      So you, you wanna think those things through, but I, I encourage you to have the interest fee provision in there because it is something that you can say, it does give you that leverage. You gets paid in 10 days, then we’ll waive it or something like that. Yep.

      And so you, you, you always want to try to appear, even with the most difficult client, it is in your best interest, no pun intended, to, to appear to be as accommodating and as helpful as possible. Because your goal, when you think about it, is to extract yourself from this relationship with as little damage to your business as possible.

      That’s right. And generally escalating, and, you know, you know, putting up your fists and sparring is not the way to get there.

      Gini Dietrich: No, absolutely not. And like I said, if you, if, if you can avoid burning a bridge because you’re right. These cl, these, these are people who are going to refer business to you.

      And I always say, I always say this about employees. You always remember an employee by the way they left, not with by all the great work that they did while they worked with you. Yep, sure. And if they behave, if they left badly, that’s how you remember them. And it’s the same thing with clients. If you leave the relationship poorly or you leave with a bad taste in their mouth, or you put them on blasts publicly.

      They’re not going to refer business to you, and they’re going to remember that you treated them badly from their perspective when you left. So I think those are the kinds of things that we have to think about as we, as we deal with clients who don’t follow their agreement that they made with you.

      Chip Griffin: Right.

      And, and I, and I do think that it is important to try to, to end relationships in such a way that you leave the door open to future possibilities. Sure. At the same time as you’re seeking to resolve these kinds of issues. I wouldn’t put too much stock in that because the vast majority of clients who have ever left any of my businesses over the years, will say things like, oh, well, we’ll be back when, you know, and, and that may be time certain, it may be when their business turns around, it may be, you know, whatever.

      The vast majority never come back, and I don’t believe that’s because, you know, my businesses are all lousy and they were just, you know, making stuff up to make me feel good. I, I think in the moment most people actually believe this, but… Things change for them. Life moves on. Sure. And, and yes. And so maybe it just doesn’t feel like a fit later on.

      Right. And there’s nothing wrong with that. Right. And I don’t blame them for that, but I do, I do encourage owners not to say, well, they said they’ll come back in three or six months, so you know, I’m gonna cut ’em a real sweetheart deal. You wanna be careful about that. Make a decision that assumes that you would still be okay with it if they never come back.

      I mean, I, I always think that most business decisions. If you, if you look at them through the, the worst case possibility, you’ll make better decisions. And that’s true of, you know, whether it’s resolving something with a client. Pitching new business to a client, selling your agency at some point down the road, always assume that you only get the bare minimum out of it.

      Yeah. And ask yourself if you are okay with the bare minimum. If you’re only happy with it because there’s some icing on the cake that you think is coming later, then you probably shouldn’t go down that path.

      Gini Dietrich: No, totally agree with you. It’s, you know, counting your chickens before their hatch. Don’t do that.

      Don’t ever, ever do that.

      Chip Griffin: Nope. Nope. Kill a chicken and eat it.

      Sorry, PETA.

      Gini Dietrich: On that note,

      Chip Griffin: I think, I think probably on that note before we go farther off the rails, we will draw this episode of the Agency Leadership Podcast to a close. I’m Chip Griffin.

      Gini Dietrich: I’m Gini Dietrich,

      Chip Griffin: and it depends.

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      Agency Leadership PodcastBy Chip Griffin and Gini Dietrich

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