VoxComm and the Media Federation of Australia (MFA) have urged agencies to report pressure for extended payment terms from some parts of the advertiser market.
This comes as VoxComm, the global voice for communications agencies, highlighted the damaging consequences of extended payment terms, earlier this week.
VoxComm said: “many agencies, being people businesses, do not have the financial resources to fund months of payroll. Simultaneously, extended payment behaviour harms the agency-client relationship and negatively impacts brand reputations.”
The global alliance noted that some marketers have abused their power to impose extended terms on agencies, which agencies can fund only by increased borrowing, which in turn is costly and harmful to the long-term sustainability to agency business.
“The impact restricts agencies’ abilities to pay their people, to build or acquire new capabilities, to invest in research, and to retain and attract the best talent. Weakened agencies are detrimental to their clients’ best interests. Agencies accepting these sorts of demands hurt all agencies while likely driving their own business into the ground.”
As a result, VoxComm urged marketers to understand the commercial consequences of such practices, and for agencies to push back on clients’ insistence on longer payment terms.
“We encourage 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. This process should start before sending an invoice and before the payment term begins.”
VoxComm noted that while some marketers may, and in the past have, made requests for 90, 120 or even 360 days for payment terms, the best practice is 30 days.
In light of that, companies are seeking to implement harsh financial conditions on agencies.
In the EU, there is a directive stipulating businesses must pay their invoices within 60 days unless they expressly agree otherwise and provided it is not grossly unfair. Meanwhile, the Australian Government introduced the Payment Terms Reporting Scheme, whereby large businesses are obliged to report their payment times and terms to small businesses every six months.
Tamara Daltroff, VoxComm’s 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.
“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,” she added.
Sophie Madden, CEO of MFA, also urged members of the Australian industry body to report pressure for extended payment terms from some parts of the advertiser market.
“This creates extreme financial pressure on media agencies as they must bear the full cost of media buys before being reimbursed by clients,” she said.
“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 added: “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.”