‘Small businesses need to resist’: agency leaders respond to Keurig Dr Pepper pay terms
Following the uproar over 360-day payment terms offered by Keurig Dr Pepper pitching for its PR account, we ask agency experts how they’d respond to similar demands from their own clients.
How should agencies respond when a client demands harsh payment terms? / The Drum
Last week, it was revealed that US consumer goods giant Keurig Dr Pepper was demanding that PR agencies bidding for its business agree to wait almost a year before getting paid for their services. Institutions across the marketing business have condemned the practice, including Voxcomm, the IPA and the 4A’s.
But what do agency leaders think of the ask? And beyond Dr Pepper itself, would they agree to such payment terms for any client?
How do you solve a problem like... tendering for a client with unusual payment terms?
Ian Millner, chief executive officer, Cheil Connec+
To be a good, healthy and competitive agency you have to protect your business from anything that might damage levels of trust, pride and camaraderie among your people. Agencies get the clients they deserve and if you are prepared to work with clients who act like this it will almost certainly create a chain reaction leading to other negative behaviors.
We are in competitive times, but we pay our people monthly, so agencies that sign up to payment terms much beyond 45 or 60 days are really setting themselves up for a fall. Clients asking for terms like this could easily have issues themselves either in their financial health or culture, and either ought to be enough for an agency to ‘just say no’.
Jennifer Risi, founder and president, The Sway Effect
As an independent agency we deal with situations like this all the time, however these terms are just egregious and exclusionary. With a 360-day payment term, the focus is now on the cheapest versus the best agency. Agencies that respond to RFPs like this are not only being shortsighted, as this will strain internal resources like talent, but the relationship is likely to be short-lived. Agencies – no matter the size, but especially smaller firms – should be wary when responding to RFPs with these types of terms, not only due to the financial aspect, but the tone this sets for the beginning of what is supposed to be a balanced partnership.
Jason Cobbold, chief executive officer, BMB
’What’s the worst that could happen?’, Dr Pepper asks. At least agencies are getting paid… eventually. If they don’t like it, they don’t have to work with us.
This kind of view is exactly what small businesses need to resist. There is no excuse for paying late. It undermines the stability of the very businesses on which large companies like Keurig Dr Pepper rely. It also sends a terrible signal of disregard while shifting the financial burden onto others.
Just because you can, doesn’t mean you should. It is only by collectively saying ’No’ that this behavior will stop.
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Monica Chun, chief client officer and president, advisory, Acceleration Community of Companies (ACC)
We work in a service industry so having clients request accommodations (i.e. discounted rates, value add services) is nothing new. However, here, the terms are extreme and potentially harmful. In no other service industry would this be acceptable. By participating, we’re setting a precedent that this is okay and our time is not valuable. My agency once participated in an RFP with a reverse auction - where agencies get on a call and bid down their rates for services. It was insulting. To effect change, we as an industry have to all agree to not participate. Otherwise this will just keep happening.
Sara Taiyo, co-founder and creative director, Driftime
At Driftime we prefer to interrogate the RFP so we can stop clients from seeing us as a ‘hands for hire’ agency, and more as the expert consultants we are. That way they’re more likely to give us trust and autonomy, which means we can in turn make better decisions for their businesses, and more easily negotiate agreements around payment terms or billing cycles.
By replacing a typical RFP process with a series of value based conversations, we’re able to rule out such unfair terms very early in our onboarding process. Replacing a blind proposal deck with 3-5 calls/conversations goes significantly further in building trust, a position of authority, and saving your own time and sanity. Should a prospect be unwilling to change any terms, we typically withdraw from the process, as the relationship itself wouldn’t be based on trust, nor would we be treated fairly. It takes courage to say no, but ultimately you and your team will be happier, giving you space to find better prospects elsewhere.
Douglas Brundage, founder and chief exec, Kingsland
As a boutique firm, we encounter unreasonable payment terms less often than I expected after first founding the company. However, we’ve had our fair share of “net 360” situations. Although no clients have been brazen enough to explicitly set such terms, we’ve had to chase down payment for months at a time from big brands and startups alike. The issue here is that there’s a dilemma at all – yes, some agencies are famously difficult to work with and it’s important to remember that we’re in client service, but our business model cannot thrive on Net 90+.
Sam Biggins, managing director, Evoluted
We do make allowances for clients where there is a long-term benefit for us, but 360-day payment terms is too far. It comes down to supply and demand: agencies will clamor to have accounts like Keurig Dr Pepper on their books so Keurig can get away with it. The issue you have is whether an agency can sustain that.
I’d also ask: what benefit does it really have for Keurig? They still have to pay and aren’t going to go bust so it's delaying the inevitable. Maybe it’s to make their budgets for the next year super-predictable.
Yasmine K Nozile, managing director, finance, The Many
In my opinion, clients can’t expect agencies to agree to payment terms beyond net 45 days. The problem I have with a 360-day request is that doing this naturally means clients are asking us to work for free or receive free services. As a service-based business, the product clients receive is based on human manpower and they expect to be paid generally every two weeks for their contribution. Without payment from the client side, we are expected to advance the clients by depleting our cash balance to cover payroll.
Another cascading issue is cash on hand. Without payment for 360 days, we will now need a hefty cash balance to cover payroll which will either mean we will have to use cash received from other clients, bank funded line of credit or work with an account receivables (AR) financing company which is essentially a loan. For a year-long project, waiting 360 days to receive payment is unhealthy and may ultimately impact an agency's ability to even qualify or receive a reasonable LOC or loan and hence a circular issue.
Daniel Wade, co-founder, EveryFriday
The creative product is often realised by many people – the agency, production partners, stylists, voiceover artist… the list goes on. It is vital that everyone is respected in that process in realising a client’s campaign. This respect extends to payment terms. So, when I hear about 360-day payment terms – the lack of respect coming from that is unbelievable. We’ve all got the responsibility of respecting the creative product and the people that deliver it. It’s simple – pay in adequate time. And treat people as partners, not suppliers. You’ll get better work out of it, which is a win-win for everybody.
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