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Telecom Billing and Payment Terms: Fighting the Hidden Costs

Lawyers at our firm, Levine, Blaszak, Block & Boothby, LLP (LB3), are often asked whether contract clauses concerning limitations of liability, force majeure or indemnification are ever actually invoked. No one ever asks this about billing and payment provisions. It is a truism of modern telecom that all customers have problems with their bills, and the contract terms on billing and payment are the first place the customer looks to solve these problems. When these terms do not fairly balance customer risks and remedies, the result is frustration and lost dollars.

Companies with significant communications budgets frequently have to hire a Telecom Expense Management (TEM) company or dedicate an employee (or two) to sort through carrier invoices and spot and fix charges that are inconsistent with the rates negotiated, that are for services disconnected months ago, that are old, or that don’t correspond to anything the customer bought. Occasionally, carriers threaten to suspend the service of customers with good payment records because of a failure to timely pay a bill, when the bill was not paid because it was wildly overstated or sent to the wrong address.

Next to performance problems, and sometimes ahead of them, billing problems are generally the biggest headache for buyers of communications services. Sometimes billing disputes are resolved only after difficult negotiations, or even litigation/arbitration. Sometimes carriers acknowledge the problems up front and are cooperative in processing credits. Even then, flawed billing systems force customers to spend an inordinate amount of time sniffing out errors, thereby wasting internal resources and costing money.

The bottom line is that telecom savings aren't just about rates. Billing and payment terms matter. Improving them may not always result in a customer being able to avoid all of the problems listed above, but it will eliminate the "gotchas" built into the carriers' standard forms, and give the customer the tools it needs to protect its rights and resolve problems more quickly and advantageously.

Here are some of the key billing and payment terms that customers should be thinking about.

Payment Due Date
Carrier contract forms typically require payment within 30 days of the date of an invoice. Yet customers often don't receive telecom invoices until 7-10 days after the date of invoice, giving them 20-23 days to pay, which for many is not enough time to process payment.

Should you care? Absolutely. Most carrier forms state that the vendor can charge interest on past due amounts (usually at 18% per year) and suspend service on 5-10 days notice for failure to pay by the due date. Carriers like to claim that they would never actually enforce some of these remedies against good customers like you, but when/if a relationship sours, be assured that they will have no compunction about doing so.

In determining what to ask for, think about what you really need. What is your payment cycle? Can you live with 30 days from date of invoice so long as bills are actually received by a certain day of the month? Can you live with 30 days from your receipt of a bill? Maybe you charge back costs to your affiliates or internal clients based on their usage of the services--in which case worrying about and allocating late payment fees can be administratively harrowing. One idea that has been floating around is to push carriers for an early payment discount or a lump sum credit at the end of the year for timely payment, which seems to put the incentives in a better place. The carriers will not offer this up front, but in tough economic times, getting money quickly may be enough of an enticement for even the most intransigent carriers to change their ways.

Right to Withhold Disputed Amounts
Some carrier forms acknowledge that the customer has a right to withhold disputed amounts (but usually only if the carrier is informed of the dispute before the next invoice arrives), and that only undisputed amounts are subject to a late payment penalty. Others don't. Where the language doesn’t provide for this right, ask for it. There is no better leverage in resolving a billing dispute than having the right to withhold the disputed amount, and it is a right carriers are usually willing to give.

The harder issue arises where your company policy is to withhold not only the actual disputed amount but the entire invoiced amount when there is an error on an invoice. This is difficult to negotiate even though a lot of old time procurement types will tell you it's the only way to get the carrier's attention. Our view is that carriers respond most productively when they realize that you are challenging them with real-life problems, not a theoretical wish-list.

Resolution of Disputed Amounts
Pay close attention to how billing disputes will be resolved, and by whom. Carrier forms often give the carrier the right to investigate the matter and be sole arbiter of whether your concerns are valid; however, almost all carriers will agree to a fair dispute resolution process in which the ultimate decider (after internal escalation) is an arbitrator or a court. Having a reasonable provision substantially reduces the odds that you will ever actually arbitrate or litigate.

Time Period for the Customer to Dispute a Bill
Depending on the service, the period of time for disputing a bill is either governed by the statute of limitations in the federal Communications Act (2 years from when the "cause of action" arose), or the period provided by applicable state laws, which in some states permit a customer to raise a dispute up to 6 years after a billing error occurs. These limitations periods, however, can be overridden by contract, and they almost always are. You just may not know it.

Virtually all carriers have limitations periods (usually 6 months to dispute a bill) in their tariffs or "service guides"--i.e., documents on a website that contain terms and conditions that are incorporated into customer contracts by reference and which the carrier can change unilaterally (which raises an important point--just because you don't see something in your contract doesn't mean it isn’t there). Since the tariff or service guide is part of the contract, its terms trump the otherwise applicable statute of limitations. Unless the customer stays up to date on the contents of these incorporated documents (which can be hundreds of pages long)--and most customers don't--it will not know that this limitation exists until it disputes a bill and discovers that it is out of time (and out of luck).

Add this issue to your list of terms that must be addressed in the contract. Base the time you need on your experience. For some clients, 12 months is more than enough time to dispute a bill. For others, having as much time as applicable law allows to dispute a bill is the best outcome--especially customers for whom paying for circuits that were disconnected months or even years ago is not a one-time only occurrence. Time is money, in this case literally. The difference between recovering 6 months of prior charges and 24 months of prior charges can be substantial, especially when you think about the fact that in these cases the carrier has taken your money because of its billing errors.

Time Period for the Carrier to "Correct" a Bill
How long after delivering services should the carrier be able to bill for those services? With respect to most of what you buy, requiring the carrier to bill a customer within 4 to 6 months is hardly unreasonable. Yet the carriers will tell you that the amount of time the customer has to dispute a bill should correspond to the amount of time the carrier has to bill for the services, i.e., if the customer wants to limit the carrier’s billing time to 6 months, then the period to raise billing disputes should be 6 months; if the customer wants 12 months to dispute, the carrier should have 12 months to bill (even that's better than most carrier boilerplates).

You should think about this another way, however: Because the customer wants 12 months to dispute a bill because of the poor quality of a carrier’s billing system, the carrier should have 12 months to bill because of the poor quality of the carrier's billing system? That makes no sense, yet carriers make this case to customers all the time with a straight face, convinced of the justice of their argument. Don't fall for it.

Carrier Remedies for Failure to Pay
It is not uncommon for a carrier to propose that a customer be given 5 days from the time it receives notice of nonpayment before it faces termination of service (or the entire agreement). The carriers will tell you that they would never do this for one billing failure only, and that they will likely give a customer many opportunities to pay before they actually exercise their termination rights, but try asking for that in writing. On occasion, a customer can induce a discussion of the carrier’s real concerns (it wants to have immediate recourse once it has determined that it is dealing with a deadbeat) and the customer's real concerns (typically that 5 days for processing payment is not enough time under the best of circumstances, much less the worst). In these cases, the parties can negotiate a solution that actually addresses each party’s needs.

Finally, beware of a third remedy found in some carrier contracts: the right to unilaterally change negotiated payment terms because of carrier concerns about a customer’s "payment history" or an adverse change in the customer’s financial condition (regardless of whether the customer is actually paying its bills on time). Under no circumstances should either party be able to unilaterally change negotiated terms and conditions.

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The terms above represent only some of the billing issues that are raised in a typical carrier arrangement. Other issues arise--currency conversion (in the case of global agreements), credit matters, audit rights, record retention policies, and carrier contingencies aimed at depriving the customer of the deal it thought it had negotiated. For all of this and more, stay tuned...

Janine Goodman is a partner at Levine, Blaszak, Block & Boothby, LLP. She specializes in representing large telecommunications and technology users in all stages of contract negotiations from development of procurement strategy and vendor selection through contract negotiation.

copyright 2009 Levine, Blaszak, Block & Boothby, LLP and Janine F. Goodman