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TA's TelecomAgent News - Publications Master
Agency - What You Need To Know back to Publications Home back to TelecomAgent News Home The Zen of Telecom Master Agency: Achieve Enlightenment, Avoid Chaos by TAHow To Get The Best And Avoid The Worst Of What Master Agency Has To Offer Editorial Note: The following information is derived from seven years of observations and conversations with sub-agents, master agents and resellers. The scenarios described in this article are generic. They are offered only so readers can better appreciate the possible risks and rewards of operating in a master agent environment in general. The scenarios are also provided so readers can properly evaluate the legitimacy of the "rules" listed at the end of the article. While the following information is sometimes presented in a light-hearted manner to improve its readability, readers would be doing a grave disservice to themselves and to others to conclude that the scenarios that follow represent by proxy actual past or present events surrounding individual industry participants – they do not – seriously. db Agent "Grass Hopper" Question: "Oh, Wise One. I have endured great difficulties, traveled many miles and climbed to the top of this high mountain to seek your guidance about a most troublesome matter. I’m a sub-agent that sells a reseller’s long distance service through a master agent’s contract. The master agent in question did not pay me the commissions I was due this past month. The master agent said they couldn’t pay me because the reseller ‘didn’t pay them’. What shall I do?" TAA "Wise One" Answer: "Assume the Lotus position, Grasshopper and let us explore the universe of possibilities. Ah, yes. It appears in your case that a great karma has run over some of your agent dogma. Alas, I see no easy answers to your inquiry in the tea leaves. It appears that your quest for understanding has only just begun. I will help as I can. Seek not and accept not the quickly delivered answer during your journey of discovery. Listen to what people say with their mouths, but look also into their hearts with your heart. Dig deep for truth. Call out for justice. Find counsel among your peers. Give Dan Baldwin at TAA a call. I understand he knows something of these matters. Here, use my cell phone . . ."
Dan’s Spin on Master Agency Many sub-agents conduct their first serious review of the telecom "master agency sales model" only after a commission check from a master agent isn’t delivered on time. Because most sub-agents begin looking at master agency from this "middle out" perspective, this article will explore the subject of master agency that way too – from the point of view of a sub-agent’s missing commission check. The information that follows is written in the "first person" tense as it is a direct response to the make believe question posed above by a made up agent. With regards to your question, "What shall I do?" – your first step is to review the contract that you as the sub-agent have with your master agent. Does your contract clearly state that you’ll get paid commission on your accounts "no matter what" or is it hedged to suggest, "you’ll get paid after we get paid"? If you have a "no matter what" contract then the master agent is legally obliged to pay you whether the reseller has paid the master agent or not. If the master agent has deep pockets then just have your lawyer demand the money from the master agent. If your contract states that you’ll get paid only after the master agent gets paid, then you’ll have to determine whether or not the master agent has indeed "been paid" by the reseller for a specific billing period for your accounts. How does your sub-agent contract define the master agent’s status of "been paid" by the reseller? When your master agent states they "didn’t get paid", they most likely mean they didn’t receive the sum of cash from the reseller that they were hoping to receive. Master agents generally view the "sum of cash" expected from the reseller to simply equal the commissions due on all the accounts that had usage during the commission period in question. Resellers on the other hand view the exact same "sum of cash" differently. To resellers, the sum of cash due a master agent at the end of a commission period involves a more complicated calculation. Reseller see the calculation equaling the commissions due on all the accounts that billed (or were paid) during the commission period minus any loan repayments or "take backs" the master agent might suddenly "owes" the reseller. Most all commission payment disputes between master agents and resellers are the result of disputes over the validity of "take backs". Unfortunately for master agents and sub-agents, because the reseller starts with the cash, the reseller always elects to retain disputed amounts until such time that the "dispute" is resolved. (And time is what most agents don’t have enough of when it comes to getting paid). In most cases, the reseller has indeed (in the reseller’s view anyway) paid the commissions due for the commission period in question to the master agent. But because of an "unexpected" but suddenly "required" loan repayment due to the reseller from the master agent, the master agent’s "sum of cash" received from the reseller was not sufficient for the master agent to meet commission obligations to the sub-agents. (We’ll talk about what you can do about this unhappy situation shortly.) In rare instances, the reseller really didn’t pay the master agent the commissions due for the commission period in question due to a "breech of contract" issue. Breech of contract issues might include the master agent "slamming" customers over to the reseller’s network or the master agent declaring bankruptcy. While this situation is generally bad for the master agent it can be good for the sub-agent in that the commissions due for the sub-agent’s specific accounts still theoretically exist unpaid somewhere. If the reseller has elected to cancel the master agent’s contract for breech of contract, then it’s possible that the reseller would desire to contract directly with the master agent’s producing sub-agents. (While not generally required, it’s usually considered "good form" to get your "former" master agent’s blessing prior to attempting to contract directly with the reseller that the master agent is at odds with.)
What’s a "Take Back"? Back to the situation where the master agent did "get paid" but didn’t receive any cash due to "take backs". What’s a take back? Consider the following conversation that may have happened several months prior to the master agent signing any sub-agents up: Master Agent (MA): "With all my sub-agents, I can send you $100,000 a month in new business if you’ll pay me 15% commission on a 5.9 cent interstate switched rate so I can pay my sub-agents 13%." Reseller (RS): "We usually start new agents out at 7% selling that 5.9 rate. We’ll pay you 15% on the 5.9 rate after you reach $100,000 per month in new business and your bad debt each month is less than 2% of monthly billing." MA: "Well I’m getting 12.5% commission now from the reseller you want me to stop sending my current $100,000 in monthly new business to and my historic bad debt experience is just 1%. I like you guys and all but you’ll have to pay the 15% from the start if you want our business." RS: "Well we believe in you and really want your business so here’s what we’ll offer you. We’ll give your master agency exclusive access to this 15% 5.9 rate. We’ll ‘loan’ you the full 15% from day one. All you have to do to ‘earn it’ from day one is to be billing $100,000 each month in new business after a six month ramp up period with bad debt below 2%. Deal?" MA: "Deal!" So for the six months of January through June, business pumps and sub-agents get paid an unheard of 13% commission on the 5.9 rate from the master agent like clockwork – everyone’s happy. All of a sudden, July rolls around and no more sub-agent commissions. "What do you mean the reseller didn’t pay you because of ‘take backs’? What the hell’s a take back?" In the reseller/master agent deal referenced above, the master agent "earns" the 15% from day one "if . . ." – but what happens if the 15% from day one is "not earned" because the $100,000 monthly new business threshold wasn’t reached in time or bad debt exceeded 2%? "Take backs" are a sudden "loan repayment" of the accumulated amounts of money "paid but not earned" if and when the reseller (in their sole discretion) decides that (based on the numbers the reseller generates behind closed doors) the master agent has not delivered contracted volume or that the contracted bad debt (customers not paying their bills) of the master agent’s customer base is too high. In the scenario above, let’s say the master agent brought in $20,000 of new business in the first month. Let’s say the master agent expected that new business would increase by $20,000 per month ($40,000 in the second month, $60,000 in the third, etc.) until it stabilized at $120,000 per month in new business after six months. With a $20,000 per month increase, the master agent easily beats the "ramp" and "earns" the 15% from day one. For whatever "reason" however (more on the reasons shortly), let’s say that the new business grew by only $10,000 per month after the first month of $20,000. After the six months, the master agent would be at just $70,000 per month of new business. With only a $10,000 a month increase, the 15% "loan" from day one would be "unearned". Now what? Well you can be sure the bean counters in the reseller’s commission payment office will be doing some "take back" calculations that look something like this: (Graphs not currently available) Graphs like the imaginary ones above might lead to the following imaginary dialogue:
Unpleasant Conversations Reseller: "Hey, nothing personal Mr. Master Agent, but look at this contract you signed with me. It says you owe me $61,600 this month because you didn’t live up to your end of the deal. Here’s the $24,500 in commission we owe you for July. I’m setting it on the table. Now where’s the $61,600 you owe me? A little short this month, huh? Tell you what, since I’m in a good mood I’ll let you start paying me the money you owe me with this $24,500 of yours you have sitting on the table here. So now you just owe me $37,100. OK, well I guess that’s it for us right now. Don’t get lost on your way back to see me next month with some more of the money you owe me!" Take backs are tough. Few master agents have sufficient cash reserves stockpiled to survive a large take back unscathed. What to do? Hey, the reseller lived up to their end of the bargain, right? The sub-agent lived up to his end of the bargain, right? Looks like the master agent is left holding the bag. Master Agent: "Hey now, you guys – you great sub-agent guys. You know I can explain all of this. There’s a lot you don’t know. You know that reseller’s done us wrong. I’m going to get our money. You’re gonna get paid everything you’re owed. We just gotta tough it out together another day, or two or three . . ."
What to do? Sub-Agent: "Oh sure, Mr. Master Agent. Yeah, you betcha! We’re behind you all the way. 100% Yup, that’s it. Yes-sireee-bob. Uh, huh. Hey, uh – you wouldn’t mind if I called that reseller just to confirm a few things would you? Yeah. You know my wife’s out of work. And, well, we really need the money like today. And, you know how it is, right? So anyway, I’ll let you know what the reseller says. Good luck with your stuff!" Huh. What the heck just happened? The reseller’s got all the money. The sub-agents are bailing for the reseller and the master agent’s sure someone’s done him wrong. Did someone? What could have gone wrong?
Sub-Agents as Judges It might be pure and simple. Maybe the master agent just didn’t live up to his end of the bargain. An actual $10,000 per month of growth is not a contracted $20,000 per month of growth. Miscalculate; roll the dice, loose. Happens every day. When this happens, master agents can and should cut sub-agents loose to seek direct relationships with their resellers. It might not be pure and simple though. There may be valid mitigating circumstances for master agents not beating a ramp-up period with promised volume. There may be valid reasons for unexpectedly high bad debt write-offs. If valid reasons for missing contracted measures do exist, then everyone should take a quick "time out" and come back in good faith and try to make the right thing happen. What might be the possible mitigating circumstances or "reasons" that could legitimately prevent a master agent from beating a ramp up period if the master agent has indeed submitted the orders that should have beat the ramp? Do good reasons exist for good customers to suddenly not pay their bills? Good reasons often can and do exist. A reseller’s unforeseen inability to quickly provision customer orders could hamper a master agent’s ability to beat a ramp. As far as bad debt is concerned and even properly measuring usage volume, that can be drastically effected by a resellers ability or lack thereof to bill customers in a proper or timely matter. Network reliability enters the equation as well. How many "good" customers might elect to do a "bad" thing and not pay their long distance bill if their 800 number stopped working for an unacceptable period of time? What if the invoices themselves are not presented to customers for payment for unusually long periods of time? These and other good reasons can prevent a master agent’s "good faith effort" to beat a ramp. But do mitigating circumstances or "good reasons" count if there’s not a provision for them in the original or amended contract between the master agent and reseller?
What Difference Does It Make? So now that you know about take backs, mitigating circumstances and missing money – you still want to know where that leaves you right? Pretty much the same place as you started, unpaid and in the middle. As the person who provides the grist for the mill though, both the reseller and master agent will be watching where you plant your flag of loyalty. Before you make your first actual move to get paid though, you should try and meditate on who’s in the right – after all, the title of this article is "The Zen of Master Agency" and your decision here may affect your long term professional karma. How to decide? Consider participant intent. Is it the intent of a master agent to break from a reseller contract for whatever greener pastures that may lie elsewhere and blame it on "mitigating circumstances"? Is it the intent of a reseller to unreasonably break the back of a hardworking master agent to strike a more profitable deal with sub-agents direct? Are all the challenges the product of something completely different? (Just a bad bump in the old universal time & space continuum, perhaps?) Tough questions. Elusive answers. Unfortunately, most sub-agents don’t have the time or the financial stamina to explore such issues of legal intent or right and wrong. For most sub-agents it’s, "OK, ‘legal intent – right and wrong – bad karma’, got it – Now who do I see to get paid today?" For those of you simply in search of a basic answer we humbly offer the following: Bottom line: If your master agent can’t pay you by the time you need to get paid, go see the reseller and talk nice. And since most all Eastern and Western philosophies recommend a big spoonful of "prevention" as the best cure for any malady we give you:
Six Sub-Agent Rules to Avoid Master Agent/Reseller Trouble Sincerely offered to you free of charge by TAA. Ignore them as you would advice from your doctor.
Confirm for yourself that the volume growth on the master agent’s recent commission statements will easily keep him from suffering "take backs". Confirm exact contract language and dates for ramp periods. What is the master agent’s contacted bad debt exposure to the reseller? Be very concerned if the master agent must make good on bad debt to the reseller but does not pass that bad debt responsibility on to the sub-agents in all sub-agent contracts (not just yours). All the business you put on might be good but another sub-agent could put on bad business that wipes the master agent – and you – out.
Sub-Agents Drive the Money Boat And because they do, they need to expand their expectations of master agents when it comes to addressing the six rules cited above. Most master agents have not yet had a sub-agent ask to see commission statements or contracts. That doesn’t mean it shouldn’t or can’t happen. Two years ago, resellers considered the idea of "agent equity" completely ludicrous. Today agent equity clauses are a standard master agent contract option – because master agents asked (and/or insisted.) Now it’s time for sub-agents to "ask and/or insist".
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