Let's get into it
2. Example
Payment Terms, Audit Rights. Indemnification, Sequential Liability, Termination
Key Commercial Terms
View
Payment timeframes
Payment Terms
Establishing Credit Worthiness
Payment terms outline when and how the client will pay for the agency's services (both direct costs and pass-through costs from a 3rd party.) This is a critical aspect of the contract, as it directly impacts the agency's cash flow and financial stability. Generally, payment terms are set at 30 days to help the agency manage monthly obligations such as rent and payroll. To the right you'll learn more about payment terms and the related concepts that go into them.
Financing Options
Considerations
Financial Audits
Audit Rights
Contract Compliance Audits
Audit rights grant the client the right to examine the agency's records and financial documentation related to the engagement. This allows the client to verify the accuracy of the agency's billing and ensure that funds are being used appropriately. There are three main areas of Agency audits but regardless of the audit category it's important that an agency ensure that the audit has a clearly defined scope and doesn't go beyond those bounds.
Media Benchmarking Audits
Audit Scope
Indemnification & Limitation of Liabilty
Indemnification
Limitation of Liability
Indemnification and limitation of liability clauses address how the parties will handle potential losses or damages arising from the engagement. These clauses are essential for managing risk and protecting both the agency and the client from unforeseen liabilities.
How might an agency cause loss for a client?
Sequential Liabilty
Primary Responsibility
Secondary Responsibilty
Sequential liability is a legal concept that dictates the order in which parties are responsible for fulfilling obligations or covering liabilities within a contractual relationship. It's particularly relevant in advertising, where multiple parties are often involved. If a client hires an agency for a project that require the agency to utilize a third-party vendor, what happens if the client neglects to pay an agency invoice? Who is then responsible for making sure the third-party vendor gets paid?
Tertiary Responsibilty
Sample Language
Example
Termination Clauses
Termination for Cause
Termination for Convenience
Both the agency and the client retain the right to terminate the relationship. Termination clauses outline the circumstances under which the contract can be terminated and the procedures for doing so. This provides clarity and predictability for both parties in case the business relationship needs to end. Contracts can be terminated for two reasons:
When to use a new SOW
Considerations
4As Guides
Click on the images below to check out these 4As guides and resources
Indemnification & Limitation of Lianbility
Sequential Liability
Payment Terms
But here's what we think... about thinking.
Generally, payment terms are set at 30 days to help the agency manage monthly obligations such as rent and payroll.Clients often try to extend payment terms to 60 or even 90 days to improve their cash flow, but the agency needs to protect its cash flow as well. The agency is not a bank and certainly can't operate like one.
Noteworthy
While no one likes to think of the end of a relationship when you're initially coming together, it's critical that your contract be explicit about the termination terms. They should be easy to find and clearly laid out so they can be discussed and agreed upon before moving forward with the agreement.
Media Benchmarking Audits
These audits evaluate the effectiveness and efficiency of the agency's media buying and placement strategies. They compare the agency's performance against industry benchmarks and best practices, looking at metrics such as reach, frequency, cost-per-thousand impressions (CPM), and return on investment (ROI). Media benchmarking audits help to identify areas for improvement and optimize media spending.
In situations where clients require more flexible payment arrangements, agencies can explore financing options such as a Line of Credit or Accounts Receivables Factoring. Click the buttons to learn more.
Financial Audits
These audits focus on the financial aspects of the agency's operations, including revenue recognition, expense tracking, and cash flow management. They ensure that the agency is adhering to accounting standards and that financial records are accurate and complete. Financial audits can be conducted internally or by an independent third-party auditor.
Noteworthy
It's important to note that alternative methods such as Accelerated Billing and Client Direct Pay, may not appeal to clients, as they can impact their cash flow and financial planning. It's crucial to address these options early in the relationship-building process and clearly communicate the reasons for their necessity. By carefully assessing client creditworthiness and offering appropriate payment solutions, agencies can navigate financial risks, maintain strong client relationships, and ensure a healthy cash flow for their business.
Can you think of ways an agency could cause losses for a client?
Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore. Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt.
Did you guess the answers provided by hovering over the radials in the image? Of course mistakes happen but in general, an agency should aim to limit its liability to no more than the annual fees being paid by the client.
Contract Compliance Audit
These audits assess the agency's compliance with the terms and conditions outlined in the contract with the client. They examine deliverables, timelines, budgets, and other contractual obligations to ensure that the agency is meeting its commitments. Contract compliance audits help to identify any deviations from the agreed-upon scope of work and address potential issues proactively.
*You can find the 4As Guide to Sequential Liability in the resources section at the end of this module
When establishing payment terms with a client, it's also essential to consider their creditworthiness, or their ability to pay their bills on time. For clients with less established credit or those experiencing financial challenges, additional measures may be necessary to protect the agency's financial interests. In this case there are three options. Click on the buttons to learn more.
Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat, duis aute irure dolor in reprehenderit.
Audit Rights
Audit rights grant the client the right to examine the agency's records and financial documentation related to the engagement. This allows the client to verify the accuracy of the agency's billing and ensure that funds are being used appropriately. There are three main areas of Agency audits but regardless of the audit category it's important that an agency ensure that the audit has a clearly defined scope and doesn't go beyond those bounds.
A long lookback periodOverhead costs and salaries Contingency Auditors
Key Commercial Terms
Sean McGlade
Created on February 24, 2025
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Transcript
Let's get into it
2. Example
Payment Terms, Audit Rights. Indemnification, Sequential Liability, Termination
Key Commercial Terms
View
Payment timeframes
Payment Terms
Establishing Credit Worthiness
Payment terms outline when and how the client will pay for the agency's services (both direct costs and pass-through costs from a 3rd party.) This is a critical aspect of the contract, as it directly impacts the agency's cash flow and financial stability. Generally, payment terms are set at 30 days to help the agency manage monthly obligations such as rent and payroll. To the right you'll learn more about payment terms and the related concepts that go into them.
Financing Options
Considerations
Financial Audits
Audit Rights
Contract Compliance Audits
Audit rights grant the client the right to examine the agency's records and financial documentation related to the engagement. This allows the client to verify the accuracy of the agency's billing and ensure that funds are being used appropriately. There are three main areas of Agency audits but regardless of the audit category it's important that an agency ensure that the audit has a clearly defined scope and doesn't go beyond those bounds.
Media Benchmarking Audits
Audit Scope
Indemnification & Limitation of Liabilty
Indemnification
Limitation of Liability
Indemnification and limitation of liability clauses address how the parties will handle potential losses or damages arising from the engagement. These clauses are essential for managing risk and protecting both the agency and the client from unforeseen liabilities.
How might an agency cause loss for a client?
Sequential Liabilty
Primary Responsibility
Secondary Responsibilty
Sequential liability is a legal concept that dictates the order in which parties are responsible for fulfilling obligations or covering liabilities within a contractual relationship. It's particularly relevant in advertising, where multiple parties are often involved. If a client hires an agency for a project that require the agency to utilize a third-party vendor, what happens if the client neglects to pay an agency invoice? Who is then responsible for making sure the third-party vendor gets paid?
Tertiary Responsibilty
Sample Language
Example
Termination Clauses
Termination for Cause
Termination for Convenience
Both the agency and the client retain the right to terminate the relationship. Termination clauses outline the circumstances under which the contract can be terminated and the procedures for doing so. This provides clarity and predictability for both parties in case the business relationship needs to end. Contracts can be terminated for two reasons:
When to use a new SOW
Considerations
4As Guides
Click on the images below to check out these 4As guides and resources
Indemnification & Limitation of Lianbility
Sequential Liability
Payment Terms
But here's what we think... about thinking.
Generally, payment terms are set at 30 days to help the agency manage monthly obligations such as rent and payroll.Clients often try to extend payment terms to 60 or even 90 days to improve their cash flow, but the agency needs to protect its cash flow as well. The agency is not a bank and certainly can't operate like one.
Noteworthy
While no one likes to think of the end of a relationship when you're initially coming together, it's critical that your contract be explicit about the termination terms. They should be easy to find and clearly laid out so they can be discussed and agreed upon before moving forward with the agreement.
Media Benchmarking Audits
These audits evaluate the effectiveness and efficiency of the agency's media buying and placement strategies. They compare the agency's performance against industry benchmarks and best practices, looking at metrics such as reach, frequency, cost-per-thousand impressions (CPM), and return on investment (ROI). Media benchmarking audits help to identify areas for improvement and optimize media spending.
In situations where clients require more flexible payment arrangements, agencies can explore financing options such as a Line of Credit or Accounts Receivables Factoring. Click the buttons to learn more.
Financial Audits
These audits focus on the financial aspects of the agency's operations, including revenue recognition, expense tracking, and cash flow management. They ensure that the agency is adhering to accounting standards and that financial records are accurate and complete. Financial audits can be conducted internally or by an independent third-party auditor.
Noteworthy
It's important to note that alternative methods such as Accelerated Billing and Client Direct Pay, may not appeal to clients, as they can impact their cash flow and financial planning. It's crucial to address these options early in the relationship-building process and clearly communicate the reasons for their necessity. By carefully assessing client creditworthiness and offering appropriate payment solutions, agencies can navigate financial risks, maintain strong client relationships, and ensure a healthy cash flow for their business.
Can you think of ways an agency could cause losses for a client?
Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore. Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt.
Did you guess the answers provided by hovering over the radials in the image? Of course mistakes happen but in general, an agency should aim to limit its liability to no more than the annual fees being paid by the client.
Contract Compliance Audit
These audits assess the agency's compliance with the terms and conditions outlined in the contract with the client. They examine deliverables, timelines, budgets, and other contractual obligations to ensure that the agency is meeting its commitments. Contract compliance audits help to identify any deviations from the agreed-upon scope of work and address potential issues proactively.
*You can find the 4As Guide to Sequential Liability in the resources section at the end of this module
When establishing payment terms with a client, it's also essential to consider their creditworthiness, or their ability to pay their bills on time. For clients with less established credit or those experiencing financial challenges, additional measures may be necessary to protect the agency's financial interests. In this case there are three options. Click on the buttons to learn more.
Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat, duis aute irure dolor in reprehenderit.
Audit Rights
Audit rights grant the client the right to examine the agency's records and financial documentation related to the engagement. This allows the client to verify the accuracy of the agency's billing and ensure that funds are being used appropriately. There are three main areas of Agency audits but regardless of the audit category it's important that an agency ensure that the audit has a clearly defined scope and doesn't go beyond those bounds.
A long lookback periodOverhead costs and salaries Contingency Auditors