"I send out a draft summons and complaint with a demand for response in seven to 10 days in order to avoid litigation," said Mr. Schrage, a lawyer who assists ad agencies and public relations firms in collecting unpaid bills from clients. "In most instances, clients stand up and pay attention."
Mr. Schrage, operating out of his eponymous law office, owns one of the few law firms in the country specializing in running down unpaid bills in the marketing industry. Ad agencies have law firms, of course, but most of them handle other legal matters and often refer deadbeat accounts to collection agencies. But Mr. Schrage and his posse of lawmen are aggressive bounty hunters, collecting debts from a growing group of dot-com bombs and other delinquent clients.
"Mitchell is a bulldog. He gets money for us," said Bambi Cummins, chief legal counsel for WPP Group's Young & Rubicam, New York. "He is very good at what he does."
Large law offices rarely chase after mid-range deadbeat accounts because it's too expensive. But Mr. Schrage's four-partner firm is of a size that allows it to recover smaller unpaid receivables. Mr. Schrage chases down delinquent clients for as little as $7,000 and for as much as $800,000. His firm last year recovered more than $5 million in fees for agencies.
Hard and fast data on the amount of unpaid bills an agency faces each year are not available on an industrywide basis. But anecdotal evidence indicates the tally is growing. Mr. Schrage's practice, for one, has blossomed over the past year following the fallout from dot-coms employing agencies to create campaigns that often exceeded their budgets-and then ended up unable to foot the bill.
"We're about to enter a phase in which [dot-com failures are] going to be a bigger issue," said Doug Wood, an attorney and partner at Hall Dickler Kent Goldstein & Wood, a law firm that handles large ad agencies. Hall Dickler, based in New York, has seen a rise in contested dot-com bills, but many of these are referred to collection agencies. "This year law firms will see more of this [collection activity]," Mr. Wood said.
Mr. Schrage's firm has been in business for 25 years; 15 years ago he began working for Y&R. Today, his client list includes Impiric, another WPP company; ORB Inc., an online marketing agency; PR21, a public relations company owned by Edelman Public Relations Worldwide, and DoubleClick. For his efforts, Mr. Schrage gets a percentage of the funds his firm collects.
"Everybody in business has to deal with collections," Mr. Wood said. "I imagine that Schrage is in their face a lot. He is constantly trying to convince them of the typical arguments, such as an advertising agency isn't your banker. You have to agree that they are entitled to a profit. They shouldn't be paying in advance for your media buys. All the heartrending things you say when you are trying to collect revenues."
Mr. Schrage's secret to success? "Treat every case, no matter how small, as a breach of contract litigation, take immediate and decisive action, and let the debtor know that you mean business."
Mr. Schrage says ad agencies and PR firms don't push hard enough to collect from clients and end up with significant income losses. He's usually called in as a last resort-or, as Linda Hersh, managing director of contract administration at Burson-Marsteller, put it, "After you rip out all your hair and are bald." Ms. Hersh, a regular client of Mr. Schrage, said the lawyer has helped her reclaim 70% to 80% of unpaid billings.
"In my personal opinion," Ms. Hersh said, "people tend to take an attorney much more seriously than a collection agency and react quicker to a legal form letter. You don't send someone like Mitchell after a good ongoing client. You do it with the short-term clients. When the first dot-coms surfaced, we used him a lot."
"We only gave Mitchell the clients that are real deadbeats," said Bob Ambrose, senior executive VP at Edelman Public Relations. "These are the ones who haven't paid up for 160 days." After a rough-and-tumble experience with dot-coms last year, Edelman, like many agencies and PR firms, now demands payment upfront from Internet-related firms and other start-up clients. Edelman is no longer one of Mr. Schrage's clients-it now takes care of collections in-house-but Mr. Ambrose speaks effusively of the lawyer's effectiveness. "We used to have tons of problems with these dot-coms," said Mr. Ambrose. "So we'd give Mitchell authorization to do deals to settle them. We got back about 70% of these unpaid bills."
New York-based Davis & Gilbert, which performs legal work for Omnicom Group and Interpublic Group of Cos., among others, is a larger firm that usually doesn't get involved with smaller collections. Ron Urbach, a partner with the firm, says the dot-com collapse changed the way agencies do business. "The agencies are smarter now. They operate on a cash up-front basis, so that if they purchase media, for example, they won't get burned. The dot-com shakeout has already shook. The failures may continue a bit further, but there will not be big dot-com risks in 2001."
Could a leveling in the dot-com market put a crimp in Mr. Schrage's business? "The full extent of the dot-com crisis hasn't been felt yet," Mr. Schrage said. "You see it in the real estate market, but I don't think you will see it yet in my world."