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PR Fuel: Protect Your Business From Your ClientsWhen Lehman Brothers filed bankruptcy protection last month the Wall Street institution left hundreds of vendors unpaid. Among the companies left with outstanding bills was Kekst & Co., a New York-based public relations firm that was handling crisis management. Kekst & Co., according to The New York Post, is owed approximately $400,000.Kekst & Co. will have to wait a long time to get its money, and there's no guarantee that it will get all that it is owed. In fact, the firm could end up getting nothing because it's an unsecured creditor. Any claim made by the firm will be behind those of secured creditors such as bondholders. In other words, Kekst & Co. will have to wait in line. One problem that Kekst & Co. encountered, according to the newspaper, was that personnel changes in Lehman Brothers' communications department delayed payment. The firm was expecting payment just days before Lehman Brothers filed for bankruptcy, but the check never came. Even if the check had come, Kekst & Co. would have had to cash it and had it clear the bank before the bankruptcy filing. While $400,000 is a lot of money, Kekst & Co. is owned by advertising giant Publicis, so the outstanding invoice is just going to end up as a blip on a balance sheet. Nonetheless, it's still money owed with no guarantee of payment. As the economy continues to show signs of souring, more and more companies will seek bankruptcy protection in an effort to stave off creditors. For example, earlier this week a Kansas-based ethanol producer filed for bankruptcy protection leaving its vendors with millions in unpaid bills. I doubt that many people believed a year ago that an ethanol producer would go bankrupt so soon. However, falling corn prices and tight credit markets doomed at least one ethanol firm. When times get tough like this it's time for businesses to get tough with their clients. During the dot-com bubble burst when I was doing some consulting I demanded either upfront payments or that clients put money into escrow to pay me. I had been burned by bankrupt clients in the past and my own finances were not secure enough to work without guarantee of payment. I dropped two clients who refused to pay upfront or put money in escrow - and both went bankrupt. One client who paid me upfront went bankrupt, but I continued to work with the client after the bankruptcy filing because of the good faith the client showed me in paying me upfront. A judge later approved additional payments to me during the liquidation process and though the company closed up shop, I ended up doing some work for its founder when he launched a new enterprise. There's a risk/reward quotient with any client. From a financial standpoint, you want to find out as much about the health of a company's business as you can and understand whether there's a risk of non-payment down the road. Likewise, do not let bills go unpaid. A personnel change is not an excuse not to pay a bill. The sad fact is that bankruptcies have a cascading effect. A large company goes bankrupt and can't pay a small vendor. In turn, the small vendor can't pay its own vendors, or even its own employees. The dominoes just keep falling and someone ends up being the ultimate loser in the equation. Don't let that be you.
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