Delays in compensation for work undertaken by agencies is at an all-time high despite increasing calls for the world’s biggest brands to treat suppliers fairly.
Media finance company FastPay delved into 31,529 client-invoice payments from 2,392 different companies during the three years between January 2013 and August of 2016. It found that marketing providers are now waiting an average 86 days to be paid by clients, up from 66 days in 2013 while some 7.01% of invoices are only paid after 120 days.
Google and Facebook, by contrast, have a strict 30 day payment term.
The average value of these invoices is £25,000 and has ultimately shone a brighter light on the ongoing issues facing independent and start-up agencies or tech providers that are forced to absorb the costs.
“For agency and adtech startups in particular, their early-stage cash flows disqualify them from traditional criteria,” said Matt Byrne UK director at FastPay.
“For example, take a digital marketing agency that launched a campaign for Pantene. The brand is a subsidiary of P&G, which has invoice payment terms of 90 days. Whilst the agency will be impacted by the cash squeeze, P&G’s credit-default risk is practically zero, making the investment a safe bet. We prioritise this intelligent data over the broad yet ultimately superficial checks made by traditional lenders and can usually advance payments within 48 hours.”
However, this is not a new issue for those in the advertising supply chain. In 2015, global drinks company AB InBev was called out for demanding excessively long payment terms from agencies and small UK suppliers.
The Budweiser and Stella Artois maker was found to be regularly handing over cash to agencies four months after it had received their services, although it claimed at the time all terms were set in “mutual agreement” with suppliers.
Meanwhile, Heinz was also reported to have similar payment structure.
Despite repeated calls from trade bodies for large companies to stop “abusing their suppliers” and change their attitudes towards payment terms, little progress has been made.
Bill Merrick, managing director at consultancy firm TrinityP3 said that it comes down to the fact that there is too great a financial reward for big organisations, meaning they can effectively use small suppliers as a source of cheap cash.
“These long payment terms are effectively an interest free short term money lending arrangement. Except these large organisations are impacting on the smaller suppliers to accept these terms,” he said.
“When we have raised the issue with many multinational advertisers they often maintain that the extended payment terms are implemented simply because they are unable to process payments in a more timely manner, which is an indictment of their finance function.”
But such practices are attracting greater attention from regulators, including those at the European Union, who have enacted legislation to protect SMEs from unfair payment terms.
“When we raise this issue it is because of concerns that holding their client to account will damage the relationship and possibly lead to the termination of the agreement on the basis that there are many other agencies and suppliers willing to accept these terms for the revenue no matter how long they have to wait for it,” continued Merrick.
“The irony is that the marketers working for these companies are often embarrassed about the payment terms when raised by their agencies and suppliers but appear powerless to do anything about it as the decision to implement this unfair practice sits with the CFOP and not the budget holder.”