Sequential Liability
Sequential Liability is a topic that has been getting a lot of attention these days, especially in light of a number of large advertisers potentially defaulting on their payments.
Sequential Liability means that the agency as agent for its principal, the advertiser, is liable for payment to the subcontracted (production or media) company only if the advertiser has paid the agency.
These clauses bring a number of issues to the digital space. On one hand, as digital agencies we often need to minimize risks with online advertising buys and specialized subcontract negotiations done on behalf of our direct clients. On the flip side, when we accept subcontract work from large traditional agencies, digital agencies can be adversely affected by not receiving down payments and problems collecting payment in a timely manner. For example production work typically incurs immediate labor and other costs and an agency may struggle to cover these costs while waiting for client payment, especially on larger projects.
This forum will serve as a discussion place for this important topic. Please share your stories, thoughts and opinions on how sequential liability effects your organization and what sorts of standards and best practices should be put in place.
Sequential Liability means that the agency as agent for its principal, the advertiser, is liable for payment to the subcontracted (production or media) company only if the advertiser has paid the agency.
These clauses bring a number of issues to the digital space. On one hand, as digital agencies we often need to minimize risks with online advertising buys and specialized subcontract negotiations done on behalf of our direct clients. On the flip side, when we accept subcontract work from large traditional agencies, digital agencies can be adversely affected by not receiving down payments and problems collecting payment in a timely manner. For example production work typically incurs immediate labor and other costs and an agency may struggle to cover these costs while waiting for client payment, especially on larger projects.
This forum will serve as a discussion place for this important topic. Please share your stories, thoughts and opinions on how sequential liability effects your organization and what sorts of standards and best practices should be put in place.
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Replies to This Discussion
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Permalink Reply by Kevin Arthur on -
This is an issue Firstborn has come across occasionally. Many of our clients are "traditional" agencies/holding companies and in those relationships our contracts are with the agency and not the end client. We require a portion of our project fee (typically 50%) up front before work starts and it's our understanding that this is a standard industry practice not just for digital agencies but also other production partners employed by the holding companies. As Paul points out, Firstborn has operating expenses that need to be covered which is why this initial payment is crucial to us. (We try to be flexible as possible with the balance of the payment terms.) For this reason, waiting for payment from an ad agency client until they get paid by their client is a hardship we try to avoid. We're very eager to work with the holding companies to find a solution that works for everyone and it would be helpful to hear their point of view in a forum such as this.
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