Payment terms for agency subcontractors

It is not uncommon for agencies to hire other agencies to do work for them. Unfortunately, sometimes that comes with the lead agency telling the subcontractor that they won’t be paid until the ultimate client pays.

Chip recently wrote about this on LinkedIn and encouraged agencies not to accept these terms because it transfers too much risk and removes the ability of that agency to do any kind of meaningful collections work since they can’t talk to the ultimate payer.

Gini came into the conversation in disagreement because she felt that she shouldn’t be paying out funds until she received them from her client.

Ultimately, Chip and Gini found some common ground to help agencies think about how to navigate this tricky issue.

Key takeaways

Gini Dietrich: “I think that just like we wouldn’t accept six month terms, you shouldn’t expect that your subcontractors are going to do that either. That’s not fair.”

Chip Griffin: “For whatever reason agencies believe that paying other agencies sits in its own special category and you can abuse the heck out of them in ways that you can’t do to anyone else.”

Gini Dietrich: “If somebody wanted to contract with us and they wanted to pay us in six months, I’d be like, find another sucker.”

Chip Griffin: “Here’s my issue with waiting to pay a subcontracted agency until the end client pays, and here’s why I think we need to stop that practice as an industry. It’s the only vendor that we have as an agency that we do this to. We don’t do it with our employees. We don’t do it with our landlords. We only do it with freelancers, contractors, and subcontractors, and it’s wrong. It’s just straight up wrong.”

View Transcript

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

Chip Griffin: Hello, and welcome to another episode of the Agency Leadership Podcast. I’m Chip Griffin.

Gini Dietrich: And I’m Gini Dietrich.

Chip Griffin: And we’re going to disagree today. It’s kind of fun. I’m looking forward to it because usually we’re in more or less agreement. We may differ on a few little things, but this time maybe, I mean, we’ll see, maybe we’ll find some common ground, but we’re starting out the show in disagreement right after this.

So when we started our conversation today to discuss stuff, we didn’t even really get into the niceties very much. We really just jumped right in, because Gini, you had a bone to pick right out of the gate today. And so we said, let’s go ahead and record that.

Gini Dietrich: I was like, let’s not chitchat. Hang on. I’m trying to find it.

There it is. “If your agency does work for other agencies, don’t accept getting paid only after the end client pays the other agency. You are not a bank and shouldn’t be filling that role for your clients. Even if that client is another agency. Stick to your usual payment terms. If the agency you are doing work for wants to withhold payment until they get paid, insist on having your own contract with the end client that you can pursue collections directly, if it becomes necessary.”

Chip Griffin: That was something I wrote on LinkedIn not too long ago. And apparently I struck a little bit of a nerve. I know I struck it with other people. I didn’t realize I had struck it with Gini until we started recording or,