• by George Simpson , Featured Contributor, July 30, 2010

Sooner or later, every small business in the marketing, advertising and media world gets screwed by one or more of their clients. The days of operating on a handshake backed by the full faith and credit of the individual extending his/her hand have evaporated. But even if you have it on paper, lots of things can keep vendors from getting their just rewards -- from options being canceled in a change of ownership to larger companies counting on you not coming after them in court because it would cost more to collect than what you are owed.

Getting screwed can take a variety of forms: such as in the search/interviewing process, collecting ideas from candidates eager to get your assignment, not hiring the candidate, but later implementing his/her ideas. The next time you ask a vendor for ideas about how they would expand your business and they refuse to give you specifics, this is why. Vendors often get screwed with equity deals that are affected by changes in ownership or dilution -- or simply never honored because when startups cash out, there is a strong tendency to think that since they took the biggest risk they should get ALL the rewards, and the contributions of the supporting cast that helped achieved that payday are either minimized or marginalized. "We can't get there without you ..." suddenly becomes: "Thanks for your help; here's some lunch money."

Taking on a new client is a risk for a small business that has to devote considerable resources to quickly learning all about its new client, their competitive set (perhaps their entire industry segment) and their real needs (versus their perceived needs). The fact that you aren't aware of or didn't disclose how dysfunctional your company really is only adds to the burden of producing quality deliverables. Making vendors navigate the political and territorial hotspots to try to deduce information that should be freely surrendered eats up time for which vendors get no compensation.

The usual justification for screwing a vendor is: "We didn't like your work." To which you should be ready to answer: "Really, for how long?" Letting a vendor invoice you month in and month out, assuming everything is going smoothly, is truly gross negligence on your part. If you don't think a vendor is producing, tell them RIGHT now, and give them a chance to explain why. You may discover it is because you or someone in your organization is not doing their part, making it harder or impossible for the vendor to perform.

Some clients are notorious for not paying small vendors in a timely fashion. Why not? You like to get paid by your clients on time -- why screw your vendors? They have fixed costs associated with running their businesses, even if they are sole practitioners. Let's take a look at the math.

You pay a small business $5 k a month. So do four others. Here is how much they are really making from you:

Set aside to cover taxes $1,500

1/5 of office rent: $500 (major city)

1/5 of healthcare coverage: $300 (and that is on the low side if they have families or employees)

1/5 phone calls, materials, transport to see you, other general overhead: $200.

So of that $5k check you write, the vendor actually makes about half that. And they don't get a bye from their landlord or phone company or healthcare provider because you delay their check for 60 days. Or worse still, decide after have you accrued four or five months of invoices to not pay them at all.

When you screw a small business you may think they have little or no recourse to try and collect what you owe them, especially since taking you to court is not a productive option. And perhaps that was once true, but the Internet provides an easily accessible forum for pissed-off vendors to trash you just like tourists slam hotels that overpromise and underdeliver.

Finally get a mention in TechCrunch? Who do you think is anonymously savaging you in the comments section? Wondering why comparison sites are giving your firm two instead of five stars? Can't understand why a prospect is giving you the cold shoulder? They might remember a comment someone made in a discussion group about what assholes your company is to work for. Get a call from one of your directors asking why this angry vendor is sending him registered mail outlining how you screwed him? And those are just the easy ways to get even. With a little imagination, a small business can make your life a living hell, especially if they are pissed off.

Just like personal relationships, lots of business relationships go bad after a honeymoon period. It happens; that is life. But when it does, be honorable in how you end the arrangement. Be clear why you are firing them and pay all past due invoices. After all, that is how you would want to be treated if you were on the other side of the desk.