Mid size PR firms say COVID 19 will worsen payment defaults, system of no dues certificate required

 4th April 2020    PR Insight 
 Paarul Chand

The COVID 19 crisis, mid-size PR firms say will only further impact one of the biggest challenges of the PR business: payment defaults. PRmoment India speaks to a range of PR firm owners to find out the extent of the problem and look at possible solutions.

PR firms say they will stand by their clients in this difficult time, but also want the same support for themselves from clients.

The extent of stuck payments 

Tarunjeet Rattan, managing partner, Nucleus PR commenting on payment defaults says, "This is an issue that is rampant in our industry. Despite valid legal contracts and making this a clear condition before hire, 40% of our payments are still stuck in the market out of which I know 10-15% will never get paid."

Manjuu Rangarajan, proprietor, BrandiT Communications agrees quoting an even higher figure of delayed and default payment, she says, "About 50-60% payment gets delayed and about 20 % gets never paid due to various reasons which the client comes up with after the project gets done. Associates also delay the payments most of the time, citing the reason that the client hasn’t paid them yet and some of them refuse to pay at all."

Sonali Sokhal, founder and CEO, Intelliquo Integrated Communications shared her experience, saying, "In a country like India, where there are no legal or industry standards for payment setting, defaulters etc, this is a large problem. It would be safe to assume that anything between 10 to 20% of payments may never be paid on an annual billing cycle.

Pranshu Sikka, CEO -The Pivotals says he expects the situation to worsen due to COVID 19's impact, "Historically, we haven't seen too much money stuck. About 10-15 per cent used to get stuck every financial year, most of which was recovered. However, now we are looking at about 25-30 per cent of our revenue being stuck as pending payments. Our bigger worry right now is that unlike previous years, there was the optimism of recovery in the next financial years. But with businesses collapsing left, right and centre, we fear we might not be able to recover a big chunk of pending monies."

Anil* (name changed) says the problem is fairly large scale. 

Anil* says, "The scale depends on assignment or contract. Usually, it is approximately 30% to 50% that gets stuck and never paid with various reason and excuses from both client and agency side, mostly it's the third-party accounts that are accountable for large scale stuck/never paid payments, where client usually pay to the agency and never pay the vendors, associates or cut off the amount for no reason. The most common reason is clients are not satisfied or happy. The message is we need to pay from our pockets."

Anil * adds that "The most common response we get from clients is "You can adjust in the next contract", but they then move on to hire another firm."

Who are the biggest defaulters?

While in offline conversations, mid-sized firms say that other PR firms who hire them as defaulters are among the organizations that delay or default on payments, some sectors are also not great paymasters.

According to Setu Shah, CEO, PROSE Integrated, "MSME & SME clients and individuals (personalities) are the biggest defaulters."

However, Shah also strikes a note of optimism saying, "Thankfully we have not witnessed any loss of clients or projects. In fact, we have used this time to invest time with clients to revisit the brand plans for FY 20-21 and strengthened the relationship. We are expecting some delays in payments from clients in the BFSI sector due to the slowdown in the financial markets but do not expect any writeoff."

Rattan says, "Lifestyle and real estate are the biggest defaulters. Another huge chunk comes from other PR agencies and consultants. Citing various reasons, they just ghost on you. At this point, we rarely take up clients from either of these parties unless it is someone who you explicitly trust. While there is a lot of hullabaloo around startups, they are also a risky affair. We are very cautious when we take up startups and do an in-depth reference check before signing them up. Despite such precautions, there are still some that make it to the defaulter list."

Sokhal has a more empathetic approach when it comes to identifying which industry sectors tend to delay payment. She says, " I want to use this opportunity to point out that the lifestyle industry is usually the most impacted when anything happens. So, from GST to demonetization to Coronavirus, we need to have compassion for their predicament and realize how vulnerable the entire lifestyle industry and its ancillary services are to market and external conditions. While they generate employment, they are also not offered too much support by government bodies, so the default is ironically by default many times as they are also struggling."

Sokhal adds, "The biggest defaulters are usually proprietorship firms, or smaller firms with no access to loans, or industry support. The hospitality sector has faced so many challenges lately, that many times if you are not working with a reputed brand, you can assume there will be default on payments there. In fact, in hospitality and retail, one should only work with well-known brands."

Solutions to non-payment of dues 

While COVID-19 is bound to impact payments beyond the normal, PR firm owners suggest some solutions which should be applied anyway.

Rattan says candidly, "We have tried the legal route and the ‘tareek pe tareek’ just ends up sapping your energy. A smarter and faster route will be to have the PR Apex bodies to take up these issues via a grievance cell."

Making specific suggestions, Rattan says, "If an Apex body does decide to take it up, then this would help as a starter list:

1.  A general code of ethics.
2. A proper license of operation for every PR agency/agent/freelancer in addition to the one issued by the govt
3. A grievance cell to address payment altercations.
4. A legal way to enforce bad paymasters to pay up / speed payments or be blacklisted barring which we can approach the courts.
5. A NOC from the previous agency when hiring a new one with a note on payment issues if any.
6. Standardization of contracts, evaluation methods, payment credit periods and payment methods for both parties."

Sokhal agrees saying, "I think the most important thing would be to make PR a proper service like legal or CA services. It needs an Apex body, as well as standards in payment structures, billings and salaries. PR companies need to have proper licenses to operate, thus making this a proper industry. Without all this, it will always be seen as an unorganized sector."

However, many industry experts believe it is not possible for trade bodies to enforce contracts between two firms, globally no PR association does that. Blacklisting too is a difficult option to exercise as there would be no statutory status for trade bodies; blacklisting also opens up the door to blacklists of all kinds including those of professionals who quit a job without notice.

Experts also argue that advertising associations do take up payment issues informally as do newspaper societies. 

For its part, PR trade bodies such as PRCAI does have a code of conduct, has shared standard contract templates as well as shared advisories on how to reduce cash burn during COVID-19. One of the suggestions has been to invoke the force majeure to mitigate fixed payments such as rent. 

Nitin Mantri, president PRCAI says "PRCAI has been regularly communicating with leaders of PR firms across the country, discussing and suggesting best practice measures to manage this crisis. Our members have concerns about people, clients, and business continuity. We believe that communications remains a business-critical function for clients and we are supporting them every day to communicate with their stakeholders. In addition, we have provided our member firms with a letter for their clients, which gives full information about the services PR firms can provide in these difficult times to ensure business continuity for brands. For our people, we are offering free training programmes through ICCO, running campaigns and webinars on mental health-related issues, and taking initiatives like virtual get-togethers to motivate them. Finally, we are sharing information on measures firms can take to ensure business continuity for themselves at this time."

Sikka, believes the problem, keeping the COVID-19 crisis in mind, can only be solved with a stimulus package, "In times like these, when businesses are facing a massive liquidity crunch, only fiscal intervention from the government can salvage the situation to some extent. The Government has already announced a series of measures extending relief with regards to compliances. We are hopeful that the government will put forth relief packages for various key sectors that will also revive demand for service providers like us."

*Name changed on request of interviewee.