Agency client cancellation policies

How do you handle the cancellation clause of your client contracts?

What type of notice period do you require? What are the exit terms and how do you handle clients who leave on bad terms?

These are questions that Chip and Gini address in this episode of the Agency Leadership Podcast.

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 Gini, I’m canceling you. You’re canceled. And we’ll talk about why after this. And just to be clear, we’re not talking about canceled culture today we’re talking about cancellation. Culture

Gini Dietrich 

cancellation culture. Yes. I’m trying to open the link.

Chip Griffin 

Oh boy, here we go. We’re off to our rockin

Gini Dietrich 

so in the Spin Sucks community. There’s been a couple of conversations about this over the last couple of weeks about contracts and cancellation and the first question that came up probably about a month ago was I know some larger agencies make client sign agreements with six or 12 month cancellation clauses. For our agency we use a 60 day clause as a standard notice. So number one, how do other agencies contractors address cancellation notices? What do you do if a client breaks the agreement early demands to cancel them immediately doesn’t pay. And then the conversation evolved to how big of a problem is it that freelancers contractors agencies are not getting paid by unethical clients? So you have the cancellation clause you have the clients who are not paying you have the clients who are disputing you have the clients who are cancelling early you have all of these pieces into it which we thought would be a good conversation for today’s episode.

Chip Griffin 

It’s a yeah it’s a it’s a good but painful conversation for so many reasons. And obviously it’s painful for agency owners when they are dealing with clients who cancel because that’s lost revenue. Nobody likes that. No.

Gini Dietrich 

And it’s you know, as you know, cash is king and when you’re relying on cash to you know, pay your bills, pay your employees pay yourself it’s kind of a big deal when you don’t get paid.

Chip Griffin 

But you do need cash anymore Can’t we just use this magic Bitcoin? We just have our computers mine money we don’t we don’t really need to get paid by clients. We just we just print our own money now. Hmm. You know, that doesn’t work that way.

Gini Dietrich 

Yeah, the money the tree in the backyard. that’s growing money as well, that one?

Chip Griffin 

Well, the trees in my backyard are shutting leaves right now. everywhere, all over the place, but it is what it is. So I mean look. So there’s a whole bunch of things we can dig into here with this, that the whole idea of cancellation and how you cancel a client contract or higher client cancels it. It’s something that we’ve we’ve addressed a little bit previously, I think we had an episode where we talked about contracts a couple of years ago, and some of the provisions in that I think we’ve discussed on air before that I generally don’t like long cancellation clauses and I’m generally of the mindset that you if a client’s unhappy I want to find a way to facilitate their exit in a way that’s fair to both sides. Because keeping an unhappy client around doesn’t really help I know you’re a little more hardcore about cancellation policies than I am so you know for once we’ll have a little bit of a difference of opinion here which is you know healthy but you really need to think about what your philosophical approach is first and how you want to go about it whether you’re more like yeah you know, let’s just let’s make sure that we don’t get cheated but let’s let them go or your approach which is dammit You promised me money I’m taking

Gini Dietrich 

it’s alright it was a little bit like that. I’m not gonna lie and and I will spend money to make a point with clients that try to stiff me

Chip Griffin 

Yes, I think we have mentioned that on air before that you you did once pursue a client even though it costs you more than you collected just because the point is

Gini Dietrich 

though, is that he was gaslighting me and he thought he could pull one over on me and just because I’m a pretty little girl does not mean I will not come after you and as my sister would say go all Omaha on them. So I went all Omaha on him

Chip Griffin 

why Omaha?

Gini Dietrich 

When she was in high school, she lived in Omaha and i was i was in college in a very bad part of town and they would when when they were doing bad things they would say they’re going on Omaha on people it’s not actually good but today as adults we say that we’re going to go home on somebody when it’s okay we’re gonna eat

Chip Griffin 

I had I hadn’t heard that one before and I don’t really think of as a New England or I don’t really say Omaha I think Oh yes. Oh my hands or whatever they are. Yeah. Yeah.

Gini Dietrich 

Right. Yeah. Um, so Yes, I will.

Chip Griffin 

Yes. Well, I mean, you shouldn’t allow people to take it. Yeah, yeah.

Gini Dietrich 

Um, but I’ve also found a couple of things. And certainly as as the agency has evolved, and progressed and grown and matured, and as I’ve grown and matured, as well, um, I’ve figured out a couple of things. And one is that for the most part, agency retainer relationships are built for the client to always be saying, When, when, when should we get out of this? When will we get out of this, and part of that is how the contracts are built. Like you have a 60 day cancellation clause, the clients always thinking, Okay, are we going to cancel this in 60 days, and they’re constantly thinking that even if it’s not consciously, it’s subconscious. So we really try to look at it and say, Okay, how can we affect this client’s business and their growth, but have multi year relationships, because I don’t want to be in a position where the clients always thinking, shoot, I don’t think I don’t know if this is working right now. So 60 days, maybe we should give them notice now so that 60 days from now we can start, like, I don’t appreciate that kind of relationship. So we look at things a little bit differently.

Chip Griffin 

We’ll see that that’s why I personally, like 30 days, so I’ve always done 30 day outs for in part that reason, because you don’t really have to plan ahead, right? 30 days is short enough that, that it, it makes them feel like if this goes south, I can always get out of it. And so for me, I found that tends to lead to a stickier relationship, right? Because it’s, it’s sort of like an employee, right? I mean, I know, I’m not a fan of signing employment contracts with employees that say, Okay, this is a one year or two year contract, right? Which is not all that common here. It’s more common in other parts of the world. You know, but I, I would prefer just to have an employee and we both know that, you know, we want this relationship to work. But if it doesn’t, either one of us can walk away. And I like my relationships with clients to be similar to that, because I think it should always be working. But I do understand the philosophy that you want to have more runway than that.

Gini Dietrich 

Yeah, and I will say that, I mean, our letters of agreements that we revise, probably five years ago, have a 90 day cancellation clause, and almost everybody negotiates that down, but it gives them It gives them the feeling that they can negotiate something, right, okay. So I’m okay with that. But the other thing that we do with that cancellation clause is we say, this letter of agreement, first of all, you can’t cancel within the first 90 days, because that’s not enough time. And then you have the cancellation clause. So essentially, you have to work with us for six months, is the is the agreement. But we also say the letter of agreement covers the entirety of our relationship, we may add new statements of work to it, or we may, you know, go up and down and fees and those kinds of things. But the letter of agreement covers the whole relationship. And we have found that that is, is significantly easier on continuing relationships. Because before that happened, we would have to go to clients about now in October and say, What do you want to do for next year? How are we, and that sucked, because it gave her way they gave the client and out. So we don’t do that anymore. Like, you have a 60 or 90 day cancellation clause, you’ve signed an agreement, and we’re gonna go and do the work as long as we possibly can. And that works, it tends to work, people pay their bills, everybody’s happy, we’re good.

Chip Griffin 

Yep. And that is that is uniformly what I recommend to my clients as well that you have, whether it’s a letter of agreement, or a master services agreement, or some sort of core document that governs the relationship, and then you just hang individual statements of work off of that. So that so that you have that flexibility. And it’s particularly useful when you deal with larger clients who may have legal departments or procurement to pray for those kinds of things. Because it’s a lot easier to vet a one or two page statement of work than it is to do a whole new agreement. Because even if the language is exactly the same as it is the year before, I can guarantee you, if they pass it by their lawyer, the lawyer is going to find new things because lawyers look for things just because they can and and they and they change their ideas. My Own Business lawyer has over the years changed his philosophy about certain clauses in what he likes to see. And so I will give him a document that he has personally written. And he will edit it, and I’ll be like, Hey, why are you doing that you wrote this, like, focus on the part that the client wants change, not the part that you wrote, and they’ve already agreed to, like, please. You know, stop it and procurements the same way they look at every little detail, and they’re always looking to shave a little here, do a little this and that. So don’t give them the excuse to do it. And so I think, you know, we are certainly in alignment on that piece of it. And I do think you know, having some sort of a minimum commitment is valuable as well, particularly if the work that you’re doing requires ramp up time, which most agency client engagements do, it gives you that opportunity to make sure that you’re you’re never going to be out of money, right? So if you if you know that the first two or three months are much more intense, but you don’t want to price it differently, and you’re just eating it as part of your overall retainer, which I think is fine. Have a minimum to make sure that you’ve at least covered that investment.

Gini Dietrich 

Yeah, for sure. Um, yes, and I think that, for the most part, those kinds of things, allow clients to understand that you’re an actual business, that you are handling things professionally, that you’re doing things as a business owner, and as a business should. And it makes things easier for them to understand that, you know, you’re you’re not the homeless guy that I saw sleeping in our alley, this morning. That is, you know, selling streetwise to make a buck or we this is a real business, we have employees, we have even even if you’re your only employee, you have you have to do these kinds of things to protect yourself and your business. And I personally believe that the longer that a client has to cancel the contract, the easier it is for you, as a business owner, to project cashflow, to predict what you’re going to have to do to be able to replace that business, all those kinds of things. And it protects you.

Chip Griffin 

Yeah, absolutely. And I think it is important. And I think that particularly for small agencies, it is important to convey to your clients that we’re running this like a real business. And so we’re, you know, we’re not just, you know, sort of seat of the pants, you know, we’ll just do an email and be done with it, you know, we’re using an actual agreement that’s got actual terms that we’re gonna negotiate if we have to. And the other thing to keep in mind is that, that these contracts and cancellation clauses, they’re there for when things go wrong, right? They’re there for when the client is I mean, clients don’t cancel if they feel like they’re getting more bang for their buck than they would if they did something else. Right? I mean, it would be insanity for them to say, yeah, this is working really well, we’re getting a great return on investment, we’re canceling anyway. Right?

Gini Dietrich 

Right, that that

Chip Griffin 

99.9% of the time, that’s not why someone cancels, right, it’s usually because they are dissatisfied in some fashion. And, you know, one of the discussions that we had in the Spin Sucks community was, in my view, most cancellations are not the result of one party or the other. It’s not that the client just doesn’t understand what you’re doing. And it’s not that you did a terrible job, it’s usually some combination of the two, I know that some on the client side chimed in otherwise, and basically said, it’s always the agency’s fault, and we should be able to do whatever we want. I respectfully disagree with that perspective. You know, most times I see a failure in the relationship there, there’s blame to go around. And so you as the agency shouldn’t believe that you’re guilt free, when we run, the relationship fails, and the client shouldn’t feel that way, either.

Gini Dietrich 

You know, I will say, as you’re talking about this, I will say that there have been a couple of times in the life of my agency that I have not held clients to the cancellation clause, the first time was during the Great Recession. And the second time was during when, during the shutdown last year. And I will say that, because, like certainly, certainly getting a call from every single client, the first week of April last year, sucked big time. And it got to the point where I was like, I don’t want to have this call, do I, every time I answered the phone, and the client would laugh and say Nope, and I’d be like, all right, well, I’m not going to hold you to the cancellation clause like and every single one of them came back because of that, because of that cut, would it have been easier from a cash flow perspective and all those kinds of things to have that income for 60 days? Sure, but those clients wouldn’t have come back. So I think you have to think about longer term implications from that perspective as well.

Chip Griffin 

Right and that’s the thing you always need to know just because you have a policy or legal agreement in place doesn’t mean that that’s the that’s the only answer it’s a starting point to figure out the solution and so you know, you need to use your judgment whether it’s because there’s some you know, large external event that has gone on maybe it’s just to that that business you know, maybe they lost their biggest client and they’re like, Look, we just we, you know, our cash is tight, you know, we got to take a break. You know, you have to keep those things in mind and use good judgment, particularly because you don’t want to win the battle and lose the war, right? You You may be able to capture your 90 day cancellation payment, but you may never see them again and so would you would you rather as you did eat that cancellation cost effectively, and and get them back later and get more than 90 days of more work from them or not. And so you just use good judgment. went here, don’t just sit there and say, Oh, my God, we have a 90 day cancellation policy and you will pay it.

Gini Dietrich 

I mean, there are certainly cases for that, for sure.

Chip Griffin 

There are I mean, there are certainly cases where you need to take a hard line, whether that’s on, you know, non payment and suspending work for a client or forcing them to pay out the full term of their contract or all those kinds of things, but but use some some thoughtful judgment in the process.

Gini Dietrich 

So I think there’s another angle to this, which was the second part of the conversation, and that is non payment by clients, which I think is one issue. And then disputes is another issue. So we can we can discuss them both. I have opinions on both of them.

Chip Griffin 

Well, I mean, neither you nor I have a shortage of pretty much anything which which is good when you’re a podcast host because you kind of kind of got to fill your time. So I mean, so nonpayment it. I dealt with non payment a fair bit when I was running a software as a service company, I can’t tell you that I had a lot of non payment issues as an agency, in the various agencies that I ran, I certainly had them. I’m not I’m not saying that there were never any issues. Usually it was more in the terms of slow payment rather than non payment or a true what I would call payment dispute where someone says, right, I’m not paying this because I didn’t get what I paid for. Right? I mean, I can think of literally only a single case in my agency, career as an owner, where that happened. And it was, you know, like everything else it was, it was, like I said earlier, it was a little therefore a little my fault. At the end of the day, I think I was in the right, but you know, it is what it is, you know, water under the bridge. So if you’re having a lot of them, then you need to hit the pause button and say why why is this such an issue for me? Why is this not a once in a blue moon kind of thing? And and is it that the expectations aren’t being set correctly? Is it a communications issue, that there’s something else going on? If this is more than a very rare issue for your agency?

Gini Dietrich 

Yeah. Or could be ignoring the red flags?

Chip Griffin 

Yes, yeah.

Gini Dietrich 

I, the only time that we have had payment disputed, and knock on wood, is it was a friend of mine. And he owns a business that he sold. And then he as it was during the time that Groupon was becoming a big deal. And he wanted to create a Groupon competitor. And so he took his money from this Elvis business, and he took his, his chief operating officer with him. And they started this business. And he called me and was like, he was like, we’re doing this, we’d like to hire you. And I was like, great. The very first meeting, he made his coo cry in front of us, because he was being so rude. And then as we were walking out, he said to us don’t eff this up. But he used the actual word. Um, and I remember standing outside of their building on Wacker drive downtown Chicago with my team, and we all just looked at each other, like, What just happened? That was terrible. And right, then I should have called him and said, Listen, this isn’t it’s gonna ruin our friendship, we shouldn’t do this. And I didn’t, because I didn’t have the confidence to look at the red flags. And he orders 120 grand and didn’t pay us ever. He never paid us. Yep, I had to sue him. And I never got the money ever. So I take the blame from the perspective of I knew from that, from the moment of that first meeting, that we shouldn’t have done that business. And I ignored that. So I think there are those kinds of things, you have to pay attention to two and trust your gut, you have to trust your gut.

Chip Griffin 

Yep. And when I said earlier that when an agency client relationship fails, there’s there’s fault on both sides, that red flag thing is a big piece of it right? Or the other problem is that you agree to do work that you either know is not a good fit for the client, or not a good fit for you, like you’ve taken on work just because it’s available to you. And you know, I’m not really great at graphic stuff. But you know, sure, we’ll we’ll do some design work as part of this. I mean, it usually comes about because you’ve agreed to something at the beginning of that relationship that you never should have, whether it’s the client altogether, or the work that you’re doing or something. Yep. And that is a huge cause of the problem.

Gini Dietrich 

Yeah, for sure. For sure. For sure. So I would say and we’ve we’ve had episodes about this, but watch for red flags, trust your gut. I have a business coach who will say to me obey your gut, because it’s always right. Trust your instinct, you know what you’re doing and don’t like it’s it’s far easier and far less expensive to walk away in the beginning when you see the red flags than to pursue it and hurt your reputation.

Chip Griffin 

Right. And the other thing I will say when it comes to payment disputes, don’t allow non payments to build up, right because because this is the problem that I’ve seen when I’ve gone into to work with other agencies, where they’ve got You know, as an existing client, not necessarily one that’s even canceled at this point. But they’ve got a pile of unpaid invoices. The larger that pile gets, the stellar that debt gets, the less likely you are to ever see it. And so then when you get to a cancellation stage, now you’ve got a problem, because now you’ve got all of that unpaid stuff. Plus, if they haven’t paid the last two or three months, the likelihood of them paying the next two or three months after they’ve told you they’re canceling is infinitesimally small. And so that then is turned what could have been a small payment dispute if you hadn’t nipped it in the bud when they first became a non payer, has now become this big thing that you need to figure out how to solve.

Gini Dietrich 

Yeah, and so one of the things that we started doing is we bill in advance, so we’re recording this at the end of September. So at the beginning of October, will, will bill for October, and people have to pay for that. We are we accept credit cards, I don’t care. Like I know lots of agency owners are like, Oh, I don’t want to incur that fee. Like I think that’s stupid. Like I would be stupid. I’d rather have the cash, yes. And no, I’m going to get the cash on a recurring basis. So we accept credit cards. And if it’s, if they want to pay 40 or $50,000 a month on it, so be it. And wire transfers, we only have one client, one client who pays us by cheque. That’s it. Everybody else does a wire or pays by credit card. And that way you pay a paper check still, yeah, he delivers it in person. Okay.

Chip Griffin 

So they’re very old school that he’s at. Okay,

Gini Dietrich 

he’s awesome. He’s one of my favorites. But yeah, he’s he’s the only one and he’s the only one I will allow that. But that way we know we’re gonna get paid and we don’t have accounts receivable sitting on our books ever, ever.

Chip Griffin 

Yeah. Yeah. And it’s I mean, that is that is the the best way to stay out of financial trouble as an agency, because otherwise you’re turning into a bank for your clients, you are not a bank, you’re not a bait is not your expertise, you probably don’t have the pile of cash that you’re sitting on to sustain that anyway. So do not turn into a bank. Absolutely. Bill in advance. If you’re doing project work, Bill, at least 50% upfront, yep, you know, don’t don’t pay your expenses.

Gini Dietrich 

If they have big expenses, like media buys, or whatever, they have to pay for that kind of stuff. You are not the bank.

Chip Griffin 

Yep, absolutely. And if you do that, and if you stay on top of people, you’ll be in much better shape. Now some larger clients, if you’re going to take their work, you probably are going to have to agree to longer terms, you still need to hold them to them, right. So you know, you can’t let it slide and so that means that you know, if if you’ve agreed to 60 day payment terms on day 61 you got to be calling him up and say Hey, where’s that money? Right and he and you need to keep pushing. And at some point you have to be willing to call up and say hey, we’re suspending work. Yeah, right i mean we’re just not And in those cases I always advise keep doing the work behind the scenes for a little bit so you don’t put yourself behind the eight ball just don’t give them anything. Right hold back deliverables don’t do meetings, but keep doing the behind the scene work so that when they do come current with their payment which most of them end up doing pretty quickly, when you end up suspending work you’re not all of a sudden saying you need to squeeze five days of work into one to get back on schedule.

Gini Dietrich 

So I would say at the beginning of the relationship is when all of this stuff needs to be outlined it needs to be in your contract you need to be very clear you have to set expectations and if you do that people comply because it’s a business relationship they’re excited to work with you just set the expectation and make sure that you’re you’re protecting yourself and your agency and it’ll be fine

Chip Griffin 

it will be but but absolutely do the post mortem to when you when you had a cancellation figure out why sure and address that whether it’s whether it’s because you got the wrong client to begin with you didn’t communicate with them effectively. There’s there’s some lesson that you can take from every cancellation and apply to the future. Absolutely. So So don’t don’t just sit there and say out those they never got it. It was their fault. It’s not fault. Blaming, shared,

Gini Dietrich 

shared blame. Yes.

Chip Griffin 

And and with that, that will bring us to an end of this episode. I’m not gonna blame you for the fact that not canceling me. I’m not no I’m canceling you now. Thanks. I appreciate that. Cuz I just I can’t pay your terms. So it’s easier just to stick with you. So

Gini Dietrich 

I don’t know how I feel about that.

Chip Griffin 

Can Okay, on that note, I’m Chip Griffin.

Gini Dietrich 

And I’m Gini Dietrich,

Chip Griffin 

and it depends.

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