Dubai: Local public relations and event management companies no longer willing to be checkmated by clients over non-payments are insisting on post-dated cheques in a counter move. Only on their issuance of these cheques are agencies willing to take on new clients or their projects.
The trend has become quite noticeable in the last two quarters, and in many instances brought on by clients repeatedly reneging on payment terms. It became much more prevalent with agencies dealing with clients on one-off projects or special events.
"It has come to a stage where as an agency we insist — and prefer — to enter a contract with a client only when post-dated cheques are issued," said Anuroopa Mukherjee of Pulse 360.
"Rather that than have to go through the whole process of negotiating endlessly for payments, which may never materialise even after months."
Project basis
The current situation has its origin in the recent downturn and companies reducing their marketing and PR budgets. Save for the large entities, many of them also moved away from annual retainer contracts with PR agencies to working with them on a project basis.
This then led the way to the rash of payment issues that has dogged the local PR community all through last year. For specific projects such as concerts, delayed payments had become the norm that event management companies considered themselves lucky if even 50 per cent of the agreed amount was received six months later.
Economic upheaval
PR agencies now have had enough of the status quo. "Having recently emerged from one of the greatest periods of economic upheaval, it has become even more important to ensure that, as a business, you are doing everything possible to prevent bad debt," said Louise Mezzina, partner at mojo PR.
"This is somewhat more challenging in the UAE where we don't have a credit bureau or a business culture in which full disclosure and corporate transparency prevails.
"Cheque fraud remains a serious criminal offence in the UAE and because of that, post-dated cheques can be an effective solution to guarantee payments over longer payment cycles.
Favourable terms
"This way we can extend more favourable payment terms to clients that also help them to manage their cash-flow. But while this form of payment may be acceptable to UAE-based businesses familiar with local banking laws, they are likely to hold less appeal to international clients."
Mezzina makes a fair point. The very severity with which bounced cheques are dealt with in the local system could also make clients pause about issuing PDCs in their company's name. And a reason why a good number of prospective clients are still undecided about meeting PR firms halfway on post-dated cheques.
But PR firms, especially the mid-sized ones, prefer to stand their ground rather than go back to the old ways. They believe it is the only option that offers them a measure of protection in an economy that is still in a recovery phase. Without the cushion of post-dated cheques, there is no guarantee agencies can use the legal process to pursue non-payments.
"Smaller to mid-sized agencies have always been more vulnerable to late payments by larger companies simply because their client portfolios aren't as extensive to cover the shortfall in receivables," said Mezzina.
"Post-dated cheques can help in guaranteeing a regular income stream, but I don't necessarily agree that they are used by smaller agencies alone.
More leeway
"In cases where the perceived risk of undertaking business is higher — for example when dealing with start-ups or highly exposed sectors like real estate — post-dated cheques make business sense. It remains a case-by-case approach rather than standard industry practice."
At the end of the day, it will be horses for courses policy. Longstanding clients will have a little more leeway than brand new ones about to sign up. From a wider perspective, it can be seen as a testament to the market's progress towards maturity.
Discussing payment terms
The insistence on post-dated cheques has emerged the norm in new contracts related to event management.
"Since third-party costs constitute 90-95 per cent of the bill when event management is concerned, it is only normal for PR consultancies to request the client to pay suppliers directly," said Sadri Barrage of Headline PR.
This usually takes the form of a 50 per cent advance and settlement four to five days post-event.
"In some cases clients request their PR consultancy to settle suppliers' bills depending on their internal financial procedures, but this is only acceptable when clients have a long standing relationship," said Barrage.
"In such cases, the consultancy will charge a handling fee of 10-15 per cent. We cannot act as bankers for our clients free of charge.
"These procedures have always been in practice for event management in view of the financial burdens involved.
"Financial resources usually depend on the size of your business and it is only normal for small to mid-size agencies to negotiate payment terms that are in line with their practice. This has become particularly important after the financial crisis."
