Essential Business Practices For Sequential Liability Agencies - Part 2

If your agency adopts or operates under sequential liability, it’s essential to follow certain business practices to keep your agency on the right side of sequential liability.

Earmarking Client Payments

When client payments with associated vendor passthrough costs (ex: GROSS or NET monies intended for a media buy) clear from client to agency, liability for payment to the vendor shifts from client to agency under sequential liability.

It’s essential for agencies to properly earmark the appropriate allocation of funds and avoid co-mingling passthrough monies with income (ex: agency’s media commission).

There are different approaches to handling this from simply earmarking and tracking those funds on a spreadsheet to opening a separate bank account to manage all passthrough monies.

Regardless of the approach, the key is to keep passthrough monies distinct and separate from operating monies. (read: Don’t rob Peter to pay Paul!)

Timely Payment To Vendors

Once payments clear from client to agency, it’s essential for agencies to remit payment to the corresponding vendors in a timely manner.

While that doesn’t mean agencies need to drop what they’re doing to make immediate payment, it does mean agencies should remit payment for undisputed bills and associated amounts in accordance with the agreed upon payment terms.