VoxComm, a global ad agency alliance, has urged agencies to acknowledge the consequences of extended payment terms as it claims marketers are increasingly abusing their power to impose egregious conditions.
VoxComm has said that extended payment behaviour harms the agency-client relationship, negatively impacts brand reputations and forces agencies to borrow to fund months of payroll. As a result, it has encouraged agencies to keep a record of the date when work begins and the date when payment is made for that work, and also inform the clients about it.
Best practice payment terms are 30 days. However, some marketers request 90 days and, in a few cases, even 120 days. 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.
Sophie Madden, Media Federation of Australia CEO, agrees as MFA members continue to report pressure for extended payment terms from some parts of the advertiser market.
"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," Madden 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."
Voxcomm said that corporations requesting longer payment terms are forcing agencies to cover several months of costs since they cannot pass these delays on to their employees, who typically represent the order of 80% of an agency's cost base. It's also said that clients asking for extended payment terms are asking agencies to act as banks and to provide supplementary interest-free loans, which harm the industry's best interests.
VoxComm board member and Advertising Council of Australia CEO, Tony Hale, has reminded agencies that Unfair Contract Terms legislation exists in Australia and encouraged ACA members and others to access the Australian Government’s Payment Terms Reporting Scheme to clearly understand clients’ payment history.
“While late payments are not a widely reported issue in Australia, they do exist and it is important that we don’t allow the international trends to become a reality here," Hale said.
Tamara Daltroff, VoxComm president, said clients should not be waiting for legislation to behave reasonably.
"Commitment to CSR is essential for brands to build a positive reputation and attract socially responsible consumers," Daltroff said.
"Brands should view fair payment practices for suppliers, including communications agencies, as part of their ESG considerations and ensure these practices are established within their firms."
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