Advertising agencies report an outbreak of brands, citing the COVID-19 pandemic, demanding delayed payment terms with new contracts.
The Communications Council (TCC), a peak industry body, calls the underlying trend a "convenient" excuse and a "betrayal of trust".
"We believe this is unacceptable: no client should ever expect its ad agency to bankroll its business," says CEO Tony Hale.
"This is especially relevant during COVID-19, when agencies are having to manage their own businesses and cashflows more carefully than ever."
The board of directors of the Communciations Council meet last week to discuss the issue. The demands for delayed payment are not widespread but these new terms are starting to appear in contracts, industry insiders say.
Creative agencies are generally upbeat but media agencies are dealing with a tough market. Media agency bookings fell more than 40% in April.
Hale at the Communications Council says the current crisis has had a devastating impact on many industry sectors and Australian companies.
"It is gratifying to note that the bulk of clients and their ad agencies in this country have been partnering productively to find solutions for businesses who are experiencing genuine cashflow problems," he says.
"Strong partnerships will always find mutually acceptable ways to overcome challenges by working together.
"However, TCC strongly believes it is an egregious betrayal of trust for any client to deliberately use the COVID-19 crisis as a convenient trigger to delay payment or extend contracted payment terms."
The statement comes as many brands delay, or rework, campaigns during the uncertainty of the coronavirus. According to the World Federation of Advertisers, large multinationals are likely to cut harder and hold back ad spending for longer.
John Broome, CEO Australian Association of National Advertisers (AANA): "In a crisis, productive strategic partnerships are even more valuable to maintain and foster. Therefore any instances where advertisers are using a crisis to impose additional payment terms on their agency partner is counter intuitive to me. Fortunately I do not know of any instances of this happening in Australia.”
The Communciations Council statement follows concerns expressed by global ad agency alliance VoxComm that many companies are using the crisis to delay payment.
"Late payment is a pernicious habit that even cash rich companies employ to falsely enhance their liquidity ratios," says VoxComm.
"Agencies are de facto being asked to act as banks for bigger client companies.
"These companies bully agencies into longer payment terms or just flagrantly flout contractual payment terms."
VoxComm singled out companies promoting themselves as socially responsible.
"And yet we are hearing from our members all around the world that many of those same 'corporately responsible' companies are using the crisis to delay paying their agencies.
"The unintended consequences mean agencies in-turn struggle to meet payroll, often 75% of their costs. Then have to delay paying their freelancers and sub-contractors (who have been hired to work directly for these clients).
"These are often niche and diverse community-based media owners as well as voice over artists, photographers, illustrators etc. Their fees are their salaries. It’s what pays the rent and what puts food on the table.
“Extended terms often come with consequences, including strained relationships with vendors, reduction in flexibility, and higher prices. ...the business models and livelihoods of smaller players in the marketing supply chain can be threatened by extended terms. Such companies are not banks.”
Stephan Loerke, CEO, World Federation of Advertisers: "It cannot be in clients’ long-term interest, when reputation is so critical to ensuring you can work with the best possible talent, to unfairly extend payment terms."
In the US, the Association of National Advertisers’ Payment Terms report: “Extended terms often come with consequences, including strained relationships with vendors, reduction in flexibility, and higher prices. ...the business models and livelihoods of smaller players in the marketing supply chain can be threatened by extended terms. Such companies are not banks.”
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