How creative agencies can protect against client default risk

Key takeaways

• Client credit assessment is a non-negotiable commercial process for creative agencies. It's about checking a client's ability and willingness to pay before you start work, not chasing invoices after they're late.
• Use a structured client evaluation checklist for every new prospect. This should cover company financials, payment history, contract terms, and project scope to build a complete risk picture.
• Implement risk scoring tools to make objective decisions. Assign points to different risk factors (like company size or payment terms) to get a clear 'go/no-go' score, removing emotion from the process.
• Prepayment agreements are your strongest financial defence. Requiring 25-50% upfront, or payment at key milestones, drastically reduces your exposure if a client defaults or pays late.
• Your contract is your ultimate safety net. Ensure it includes clear payment schedules, late payment fees, and ownership clauses that protect your work if invoices go unpaid.

What is a creative agency client credit assessment?

A creative agency client credit assessment is a process for checking if a new client can and will pay you. It's like a background check on their financial health and payment habits before you agree to work together. For creative agencies, this means looking at the client's business, their history with other suppliers, and the specific project risks.

Many creative agencies skip this step because it feels salesy or awkward. They worry about offending a potential client. But the most profitable agencies treat it as a standard commercial practice. It's not about being distrustful. It's about being professional and protecting the business you've built.

Think of it as due diligence. You wouldn't hire a key team member without checking their references. A client credit assessment is the same principle for your most important business relationship: the one that pays your bills.

Why do creative agencies need a formal credit check process?

Creative agencies need a formal process because client default risk is a direct threat to cash flow and survival. A single bad debt from a large project can wipe out months of profit and strain relationships with your own team and suppliers. A structured creative agency client credit assessment turns a reactive headache into a proactive business filter.

The creative industry is particularly vulnerable. Projects are often based on relationships and passion, not cold financials. Work is frequently speculative or involves significant upfront creative investment before any payment is received. Without a check, you're essentially giving an interest-free loan to a stranger.

Formalising the process also makes it fair and consistent. It removes the emotion and pressure from sales conversations. When you have a clear policy, you can say, "This is our standard procedure for all new clients," which sounds professional, not personal.

How do you build a client evaluation checklist?

Build a client evaluation checklist by identifying the key information that signals payment risk. Your checklist should be a simple document or form your team completes for every serious prospect. It covers four main areas: who the client is, how they pay, what the project involves, and the legal safeguards in place.

First, gather basic company information. This includes how long they've been trading, their company number (so you can check filed accounts at Companies House), and their main industry. A startup in a volatile sector carries different risk than an established multinational.

Second, investigate their payment history. Ask for trade references from other suppliers, like other agencies or freelancers they've worked with. Check their payment terms history. Do they insist on 90-day terms? That's a major red flag and a direct cost to your cash flow.

Third, assess the project itself. Is it a well-defined scope or constantly changing? High levels of expected 'scope creep' (where the project grows without extra budget) can lead to disputes and delayed payments. Large, one-off projects are riskier than smaller, recurring retainers.

Fourth, review the contract terms. Are your payment terms clear? Do you have a late payment fee clause? Does the contract state you retain ownership of all work until full payment is received? This last point is a critical lever for creative agencies.

Using a consistent client evaluation checklist ensures you never miss a key risk factor because you were too busy or excited about the creative work. It brings discipline to your commercial process.

What are risk scoring tools and how do agencies use them?

Risk scoring tools are frameworks that turn the information from your checklist into a numerical score. This score helps you make an objective 'go/no-go' decision on a client. You assign points to different risk factors, and the total score places the client in a category like 'low risk', 'medium risk', or 'high risk'.

For example, you might score a client like this: Established company over 5 years old (+5 points). Provides two positive trade references (+10 points). Agrees to 30-day payment terms (+5 points). Requests a complex project with unclear scope (-10 points). Asks for 90-day payment terms (-15 points).

The points and categories are up to you, based on what matters to your agency. A low-risk score might mean you proceed with standard terms. A medium-risk score could trigger a requirement for a prepayment agreement. A high-risk score might mean you decline the work or only proceed with very strict safeguards, like 50% payment upfront.

These risk scoring tools take the guesswork out of the decision. They stop you from taking on a glamorous but financially shaky client because you're swayed by the creative opportunity. The numbers tell the real story. Specialist accountants for creative agencies can help you design a scoring system that fits your risk appetite and commercial goals.

When should you insist on prepayment agreements?

You should insist on prepayment agreements whenever your creative agency client credit assessment shows elevated risk, or as a standard policy for all new clients. A prepayment agreement means the client pays for some or all of the work before you begin, or at defined milestones before you deliver the next phase.

This is the most effective way to eliminate default risk. If a client has paid 50% upfront, they are far more likely to pay the remaining 50% to get the finished work. It also aligns cash flow with your effort. You're not funding their project with your agency's working capital.

Common prepayment structures for creative agencies include: 50% upfront to start, 50% on delivery. 33% upfront, 33% at midpoint review, 34% on final delivery. 100% upfront for projects under a certain value, like £5,000. For monthly retainers, payment is always due in advance, typically on the first of the month.

Don't be afraid to make this a non-negotiable term. Professional clients expect it. It demonstrates that you value your work and run a serious business. If a client strongly resists a reasonable prepayment agreement, consider it a major warning sign from your risk assessment.

How do you check a company's financial health?

You check a company's financial health by reviewing their publicly filed accounts and using online business credit reports. In the UK, most limited companies must file annual accounts and a confirmation statement with Companies House. This information is free to access online.

Look at their filed balance sheet. Are they sitting on large debts? Do they have healthy cash reserves? Check the profit and loss account. Are they consistently profitable, or making losses? Look at the 'accounting period' date. Are their accounts overdue? That itself is a red flag about their administrative discipline.

You can also use paid services like Creditsafe or Experian for a more detailed business credit score. These reports often include a credit limit recommendation and details of any county court judgments (CCJs) against the company. A CCJ is a clear signal of previous payment failures.

For larger projects, it's perfectly reasonable to ask the client for recent management accounts or a bank reference. Explain it's part of your standard commercial process for projects above a certain value. A transparent, healthy client will not be offended by this.

What contract clauses protect against default?

Specific contract clauses create legal protection if a client defaults. Your contract is not just a scope of work document. It's your primary risk management tool. Three clauses are essential for creative agencies: staged payment schedules, late payment fees, and retention of title.

First, the payment schedule must be explicit. It should state exact amounts and due dates tied to deliverables or calendar dates. For example: "£5,000 due upon signature. £5,000 due on delivery of initial concepts. £5,000 due on final delivery of all brand assets." Vague terms like "payment on completion" are unenforceable.

Second, include a late payment fee clause. Under UK law, you have a statutory right to claim interest and compensation on late commercial payments. Your contract should reiterate this right. State that interest will be charged at 8% plus the Bank of England base rate on any invoice overdue by more than 30 days. This provides a real incentive for on-time payment.

Third, and most crucial for creative work, is a 'retention of title' clause. This states that all intellectual property (IP) rights for the work you create remain your property until the client has paid all invoices in full. This means if they don't pay, they don't own the logos, designs, or code. They cannot legally use it. This is a powerful lever to ensure payment.

How should you handle existing clients who become risky?

Handle existing risky clients by proactively tightening terms before a problem occurs, not after they miss a payment. Monitor your clients continuously. Signs of risk include gradually slowing payments, requests to extend terms, changes in key contacts, or rumours of financial trouble in their industry.

When you spot these signs, have a direct but professional conversation. Frame it around your own business processes. You could say, "We're reviewing payment terms with all our clients to help manage our cash flow. Given the current project size, we'll need to move to staged payments in advance for the next phase."

For ongoing retainers, you can reduce the billing cycle. Move from quarterly invoicing to monthly invoicing in advance. This reduces the amount of money at risk at any one time. You can also implement credit limits, just like a supplier would for you.

If an existing client misses a payment, act immediately. Stop all work. This is often called a 'stop-work' clause. Communicate clearly that work will resume once the overdue invoice is settled. Letting work continue while payments are overdue sends the message that you don't value your own time or output.

Getting the financial foundations right is key to sustainable growth. Take the Agency Profit Score to see how your financial visibility stacks up and identify where client risk might be affecting your bottom line.

What are the warning signs of a high-risk client?

Warning signs of a high-risk client include resistance to standard business practices, poor communication, and financial secrecy. Spotting these early in the creative agency client credit assessment process can save you immense stress and financial loss.

Behavioural red flags include: refusing to sign a formal contract, pushing back aggressively on your standard payment terms, being evasive when asked for basic company information, or having a history of changing agencies frequently (which you can sometimes glean from their website portfolio or LinkedIn).

Financial red flags are more concrete. These include: insisting on payment terms longer than 45 days as a non-negotiable, refusing to provide any trade references, having recently changed their company name or structure (a potential 'phoenix' company tactic), or their key decision-maker having a history of failed companies.

Project-related red flags are also critical for creative work. Be wary of clients who cannot clearly articulate what they want, have unrealistic deadlines and budgets, or expect extensive free speculative work ('spec work') before committing. This often indicates they don't value the creative process and will be difficult to manage and invoice fairly.

Trust your instincts. If something feels off during the sales process, it usually gets worse during the project. A robust assessment process gives you the data to back up your gut feeling.

How can a creative agency client credit assessment improve profitability?

A creative agency client credit assessment improves profitability by reducing bad debt, improving cash flow, and allowing you to focus resources on the best clients. Every hour spent chasing late payments or writing off unpaid invoices is an hour not spent on billable work or business growth.

Financially, it directly protects your gross margin (the money left after paying your team). A £10,000 bad debt doesn't just cost you £10,000. If your agency's gross margin is 50%, you actually needed to do £20,000 of extra work just to cover that loss. Preventing one bad debt has a multiplied positive effect on your profit.

It also improves operational efficiency. Working with professional, prompt-paying clients makes projects run smoother. There are fewer stressful conversations about money, less administrative time spent on chasing, and a more positive team culture. Your team can focus on doing great work, not worrying if they'll get paid.

Ultimately, a disciplined creative agency client credit assessment helps you be more selective. You can choose clients who value your work, pay fairly and on time, and contribute to a sustainable, profitable agency. This is a strategic advantage. For more on building a commercially resilient agency, explore our agency insights.