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In the face of alleged bullying by some clients, VoxComm, a global joint agency association issues a statement claiming that late payment is not smart, it’s irresponsible.
These companies bully agencies into longer payment terms or just flagrantly flout contractual payment terms
“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.” — Association of National Advertisers’ Payment Terms report, March 2020
Pick up any company’s annual report and there will be a section on how important it is to be socially responsible. Companies know that both their customers and employees expect them to do the right thing. For people. For the planet. According to the March 2020 Edelman Trust Barometer Survey, 90% of people said companies and brands need to protect the financial well-being of employees and suppliers.
They know that if they don’t, it won’t just be bad for PR. It will be bad for sales. It will be hard to hire and retain talent as well as customers.
Today, Fortune Global 500 firms spend around $20 billion a year on corporate social responsibility (CSR) activities.
Research has shown that various forms of prosocial incentives (workers get rewarded not with money, but with the firm engaging in some act to benefit society) indeed increase productivity in simple and complex tasks, increase retention, and even lower employees’ wage demands.
With the World trying to come to terms with the COVID-19 pandemic one would expect this to be even more true than ever before.
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. Late payment is a pernicious habit that even cash-rich companies employ to falsely enhance their liquidity ratios.
It is directly at odds with their avowed policy of CSR. 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. 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.
Research shows that if employees think their company is using CSR initiatives instrumentally—trying to engage in prosocial activities only to benefit from it—then they’ll react negatively and put in less effort. In other words, while these initiatives will benefit society, they will backfire for companies if people think they’re being used for the wrong reasons.
Marla Kaplowitz, President & CEO, 4A’s, May 2020
“Extending payment terms is a zero-sum game, as it does not create or add value to the end product. Agencies are not banks. They have the same needs as the businesses who are asking them for relief; they have people and vendors to pay. It’s not a good experience for any business if they’re not being paid on time. A recent analysis of the extensive Aprais database of over 20,000 cases revealed that a client-agency relationship where parties ‘win’ financially achieves the best results.”
Stephan Loerke, CEO, World Federation of Advertisers, May 2020
“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.”
Bob Liodice, CEO, Association of National Advertisers Campaign, May 2020
“I’ll be perfectly blunt: I think there are situations which are unfair and cross the line, and I am not a proponent of continuing to extend terms. There are some situations which have broached into unfair territory and there needs to be a reckoning between clients and agencies to what is reasonable and sustainable over the long term and stick with that.”
VoxComm is the new global voice for agencies, championing the value that agencies bring to their clients as turbo boosters for growth.
For further information on VoxComm, please contact:
Association of American Advertising Agencies (4As): United States of America. Contact Marla Kaplowitz: Mkaplowitz@4As.org / +1 (212) 850-0702
European Association of Communication Agencies (EACA): Europe. Contact Tamara Daltroff: email@example.com / +32 (2) 740-0715
Institute of Communication Agencies (ICA): Canada. Contact Scott Knox: firstname.lastname@example.org / +1 (437) 350-1436
Institute of Practitioners in Advertising (IPA): United Kingdom. Contact Paul Bainsfair: email@example.com / +44 (776) 833-3666
Read the full list of named agency associations around from the world that have come together to call on members’ clients to seek agreement on payment terms that support a positive and mutually beneficial relationship.