The Communications Council condemns the use of COVID-19 as excuse for clients to extend payment terms
Advertising body The Communications Council has condemned the rising trend of clients extending payment terms for agency services during the COVID-19 pandemic.
The move endorses global agency association VoxComm which made an announcement last week calling upon clients to ‘seek agreement on payment terms that support a positive and mutually beneficial relationship’, after labelling the delay in payments a ‘pernicious habit’.
The Communications Council has spoken out against clients delaying payments
CEO of The Communications Council, Tony Hale, said this behaviour was unacceptable and an ‘egregious betrayal of trust’.
“No client should ever expect its ad agency to bankroll its business. This is especially relevant during COVID-19, when agencies are having to manage their own businesses and cashflows more carefully than ever,” he said.
Longer payment terms have a severe impact agencies’ financials, including the inability to make payroll – which VoxComm said can be 75% of an agency’s costs – and delay the payment of freelancers and sub-contractors, who are often hired to directly service the client.
An excerpt from this year’s Association of National Advertisers’ Payment Terms report, said: “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.”
VoxComm also said that late payment was at odds with clients’ corporate social responsibility policies that can cost Fortune 500 companies $20bn a year and act as an incentive for staff to increase productivity and work on lower wage demands.
While Australia has not experienced the same medical impact of the pandemic as compared to North America and Europe, the advertising industry has seen negative trends in accordance with these markets.
Hale said: “We have so far been spared the very worst of COVID-19 both in terms of infection rates and economic impacts when compared with Europe and North America.
“However, in common with our Northern Hemisphere counterparts, we are also experiencing the worrying, underlying trend whereby contracts are being drawn up by clients that include extended payment terms for agency services.”
Hale acknowledged that the majority of the market had found productive solutions.
“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 said.
“Strong partnerships will always find mutually acceptable ways to overcome challenges by working together.”
Standard Media Index data for March showed ad spend was back by 10.6%, but newspaper bookings had jumped by 30.2% in response to COVID-19.
I’ve chosen an alias that says it all really.
Call me reactionary, but only if these mysterious ‘clients’ are named, will anything be done, likewise truly show the courage of conviction of VoxComm and/or The Communications Council.
At the moment, this is just a case of the boy crying wolf…
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Tony Hale, said this behaviour was unacceptable and an ‘egregious betrayal of trust’.
Pull the other one, Tony.
Advertisers and agencies have been vigorously stiffing each other for years now. One side via rebates and production mark-ups, the other via predatory pitching practices and payment terms. This is just another step in the race to the bottom. There is no trust.
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“No client should ever expect its ad agency to bankroll its business.”
Can we extend this to “no ad agency should ever expect it’s design studio partners to bankroll its business”? Because this has been happening for some time now. Ad agencies, especially those under huge conglomerates like WPP, have been pushing for payment terms from increase from 30 days to 60 to 90 and some are asking 120.
Not only is Covid not an excuse for extended payment terms, but the Comms Council, AGDA and other orgs should be helping to fighting any payment term over 30 days, and in ways stronger than simply “a policy”. Name and shame all agencies demanding terms over 30 days so we as an industry can be informed and work with smarter clients.
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Pretty much every client so far has asked for a significant retainer reduction, or simply free work for 1-3 months as a result of this. Even in sectors that are not directly impacted by the situation. Sure, travel, entertainment, go ahead lets work something out. FMCG, Online retail, gaming and others are all doing fine while still asking for handouts or late paying. Disgusting practice, we’re supposed to be partners.
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