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.


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