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Apr 01 2014
Power of the Promissory Note
Tammi Russell, CCE, KSL Broadcasting

One can hope that the Great Recession is finally behind us and we are on track for economic recovery. While in the midst of this recession, we found a greater need for help from a wide range of clients. Keeping in-line with my company's mission to "provide leadership that builds-up, connects, informs & celebrates Utah's communities & families," I needed to find a way to help these clients while maintaining a healthy accounts receivable.

My company has always used the promissory note for clients facing cash flow problems. However, over the past few years I have been using it more and more as a very effective collection and sales tool. Let me give you a few examples.

A few years back one of our clients came to us with a very serious cash flow problem. This posed several problems for everyone concerned. One, they owed us $220,000; two, we needed to keep their business; and three, they needed to advertise with us in order to keep business coming in their doors. This is where using our promissory note was crucial to the success of all concerned.

In brief, the note outlined a payment plan where the client would send us an ACH (wire transfer) payment every Friday that paid $5,000 toward the note plus $2,000 to advertise for the coming week. The client is now paid in full and is still paying us $5,000 per week in advance for advertising.

Another instance involved an advertising agency and their client (advertiser) that had placed advertising. The owner of the agency came to my office because their client had been promoting a local movie that was not financially successful. Thus, their client did not have the money to pay the agency. However, the agency was still financially liable to us.  To complicate matters further not only did this agency have other advertisers they were placing on our stations, we were looking to go into a partnership deal with this agency because of their tremendous creative ability.

Much to this client's character (which I consider the most important "C" of credit) he wanted to pay us in full for the advertising they had placed on behalf of their client that had defaulted. Furthermore, he did not want to use our upcoming partnership as part of the payment arrangements which is highly unusual in our industry. 

They signed a promissory note for $48,000, paid it in full, and continue to do business with us paying within terms and our partnership is flourishing.

These are just a couple of examples of the numerous promissory notes we have entered into over the past several years. It would be safe to say that I can only think of two clients that have defaulted on their notes and are no longer doing business with us. One we are suing and the other went out of business before they could finish paying us.

Using the promissory note as a credit management and sales tool has to be one of the best business practices that we use. We have been able to help our clients, thus the community, and continue to have a successful business relationships. 

You can go onto NACM's website under "Resources" then "Forms" and they have a sample promissory note if you are interested. The note we use has these key elements that are clearly spelled out.

  • The total amount due and to which of our company(ies).
  • The name of the client's company and where they are located.
  • The name and title of the client's officer/member (always the owner) who is entering into the promissory note for their company.
  • The payments specified in number of months or weeks; along with the amount due, and date due for each payment.
  • Legal boiler plate language, such as upon default our right to sue without presentment of payment; rights to interest and fees; venue, etc.
  • Signature lines with signatory's name and title; company name and date; for both the client and me as Credit Manager.

If you would like a generic sample of our promissory note, please email me at tammir@ksl.com.  It was crafted with the approval of our legal counsel.  However, I would always advise that you get your legal counsel approval when creating a promissory note or any such legal document.