• Payment terms across services range from 41.1 to 59.9 days
• Improving cash flow is the most cited reason by marketers for extending terms
• Nearly 30% of marketers said they plan to change terms within the next year

The contentious issue of payment terms for marketing-related services is back in the spotlight again this week, after a new study by the Association of National Advertisers found that agencies are increasingly being asked to wait longer to get paid for their work.

The study found that payment terms for services including agency and talent fees, research and production all increased in 2019. The ANA’s survey of 109 marketers (59% of whom had a 2019 media budget of at least US$100 million) found that payment terms ranged between 41.1 and 59.9 days, depending on the service.

Payment terms for research were the longest at 59.9 days (up from 44 days in a 2013 study), while agency terms were 58.1 days, compared to 45.7 days in the ANA’s previous report, in 2013.

The study found that payment term reductions were “almost always” initiated by finance, while procurement’s role was to implement/enforce the new terms.

Improving cash flow was the most common reason marketers cited for extending payment terms, underpinned by pressure from Wall Street. One CPG marketer described payment terms as a “blunt instrument” for improving a company’s financial situation. “There might be other options, leading to better financial outcomes, taken off the table because of a singular focus on payment terms,” they said.

The ANA says that extended payment terms force agencies to become reluctant lenders, threatening the business model and livelihood of smaller players in the marketing supply chain.

“They require a predictable cash flow, often don’t have access to large lines of credit, and have pricing models that do not reflect the costs to their business resulting from extended terms,” the report noted. “Both marketers and smaller suppliers, in particular, need to proceed with caution to ensure that the terms of their relationship— including payment terms—are sustainable.”

More than one-third (37%) of respondents extended payment terms last year, while 18% reduced them.

ANA CEO Bob Liodice said that the survey indicates marketers are closely reviewing payment terms, and are “not hesitating to implement changes they believe are necessary.” Nearly 30% of respondents indicated that they are very or somewhat likely to change their payment terms within the next year, with 14% saying that changes are “very likely.”

Payment terms have been a source of contention among agencies and clients for several years. Last year, agencies protested against a North American agency review by General Mills that was said to include payment terms of 120 days.

“We seem to have struck a nerve,” said CMO Ivan Pollard in a statement issued in response to the outcry.

And in a 2019 report, Digiday noted that while extending payment is not a new phenomenon, major marketers continue to push the boundaries—”turning a tactic initially used to manage cash flow following the 2008 financial crisis into a standard practice, particularly among large CPG brands with marketing budgets over $500 million.”

The Digiday report noted that Chrysler successfully pushed payment terms to 180 days in a review won by Starcom last year, and referenced a claim by the leading American agency association, the 4As, that one unidentified brand had reportedly started asking for payment terms of up to a year.

Agencies have attempted to push back on occasion. In March 2015, the U.K.’s Marketing Agencies Association, whose then managing director Scott Knox is now president and CEO of Canada’s Institute of Communication Agencies, called for a “strike” against beer giant Anheuser-Busch InBev to protest what it called “despicable” business practices.

The MAA was angered by several factors in a review, including asking participating agencies to indicate how far beyond 120 days they would be willing to wait for payment. Knox accused the company of “behaving disgracefully,” forcing agencies to provide it with discounts and “financial sweeteners” across a variety of streams.

The majority (59%) of marketers surveyed by the ANA this year said they were extending payment as a means of achieving greater cash flow, although 38% admitted that the tactic had led to a strained relationship with vendor partners.

Further discussions with survey respondents determined that some agencies “offer up less resistance” and have more willingness to extend payment terms when asked. Agencies, they said, “are in a tough position and most don’t have a choice when asked to extend terms.”

The report said that a continued transition from retainer to project-based working relationships is also compounding matters, with the perspective that clients can “push hard” for this type of work, particularly with new agencies eager to “get a foot in the door.”

Two-thirds of respondents said that their company has a process in place for monitoring and enforcing payment term policies, with one person indicating that there are often “disconnects” or “sloppiness” between contract terms negotiated with a supplier and the terms outline in a company’s internal accounts payable system.

“This is a gigantic truth and gigantic hole of a mess,” said one respondent. “People are poor at managing what they commit to doing.”