VoxComm, a global body for communications agencies, has thrown scorn on marketers for demanding that agencies receive payment on longer-term deals running, in some cases up to 120 days.
“Many agencies, being people businesses, do not have the financial resources to fund months of payroll. Simultaneously, extended payment behaviour harms the agency-client relationship and negatively impacts brand reputations,” said the body.
“Some marketers have abused their power to impose egregious extended payment terms on agencies, which agencies can fund only by increased borrowing.”
VoxComm, which Advertising Council of Australia CEO Tony Hale (pictured) is a board member, explained that this borrowing is damaging to the long-term sustainability of agency businesses, driving higher costs and risks.
“The impact restricts agencies’ abilities to pay their people, to build or acquire new capabilities, to invest in research, and to retain and attract the best talent. Weakened agencies are detrimental to their clients’ best interests. Agencies accepting these sorts of demands hurt all agencies while likely driving their own business into the ground,” it added.
VoxComm said that best practice payment terms are 30 days but that some marketers request 90-day deals and even 120-day terms.
“In one extreme example, Keurig Dr Pepper asked for 360-day payment terms to participate in a U.S. PR agency pitch, following which VoxComm intervened,” it added.
The Payment Terms Reporting Scheme in Australia requires large businesses to report their payment times and terms to small businesses every six months.
“The emergence of this type of legislation reflects that more is being done at a policy level to address the issue of unfair payment terms based on the principle of ‘cash neutrality’ – that neither party should gain or lose due to the flow of money,” said VoxComm.
Meanwhile, Sophie Madden, CEO of the Media Federation of Australia (MFA) agreed with VoxComm’s assessment of the situation.
“MFA members continue to report pressure for extended payment terms from some parts of the advertiser market. This creates extreme financial pressure on media agencies as they must bear the full cost of media buys before being reimbursed by clients. While not all Australian clients are delaying payment, the MFA agrees with VoxComm of the need for agencies and clients to be aware of the damaging consequences of extended payment terms,” she said.
“Pushing payment terms in some cases to 90-120 days is lengthy by any standard and particularly onerous for smaller agencies and other smaller players in the marketing supply chain. We believe that client payment terms should reflect payment term agreements with media vendors.”