A coalition of 11 agency associations from around the world, including Canada’s Institute of Communication Agencies, has come together to create a “new global voice for agencies,” and has identified payment terms as one of its first priorities.
VoxComm says it is committed to championing agencies’ value as “indispensable” business partners. In addition to the ICA, its members include the Association of American Advertising Agencies (4As) in the U.S.*, the U.K.’s Institute of Practitioners in Advertising and the European Association of Communication Agencies (EACA).
The agency associations have been working together on VoxComm for the past year, said ICA president and CEO Scott Knox, with the original plan to have a website and manifesto debut this summer. The arrival of the COVID pandemic pushed them to open up the organization early.
Late payment of agency fees is among the hot-button issues the coalition is committed to tackling. In a press release, VoxComm described them as a “pernicious habit” that has been exacerbated by the global pandemic.
Most marketers today want to be seen as being socially responsible, said the VoxComm release, “and yet we are hearing from our members all around the world that many of those same ‘corporately responsible’ companies are using the crisis to delay paying their agencies.”
VoxComm claims that agencies are essentially being asked to act as banks by being forced to accept longer payment terms. In some cases, it says, clients “flagrantly flout” contractual payment terms. Even “cash-rich companies” are not above delaying payments to their agency to falsely enhance their liquidity ratios, said VoxComm.
“I have said many times that late payment should not be presented as an ‘understandable action’ when most of the big companies that do it do not have any liquidity issues,” said the IPA’s director general, Paul Bainsfair, in an e-mail statement to The Message.
“Late payment should never be seen as an acceptable business practice,” he added. “What is acceptable… is a working dialogue with your agency as to how to navigate a jointly agreed way forward if cash flow is a real issue, but it should never be at the expense of an agency’s credit rating or being able to retain its people.”
In a March report, the ANA said that client payment terms for services ranging from agency and talent fees to research and production all rose last year. In a survey of 109 marketers (more than half of which had a media budget of at least US$100 million), the ANA found that payment terms ranged between 41.1 and 59.9 days, depending on the service.
More than one-third of respondents said that they had extended payment terms last year, while 18% reduced them. One CPG marketer described the practice as a “blunt instrument” for improving a company’s financial situation.
Knox said the focus on payment terms is a response to “worrying reports” by agency associations around the world that some clients are increasing payment terms above those stipulated in existing contracts.
VoxComm said that these actions can leave agencies struggling to meet critical costs such as payroll, and holding off on paying freelancers and sub-contractors who in many cases have been hired to work directly for these clients.
“Extending payment terms is a zero sum game, as it does not create or add value to the end product,” said Marla Kaplowitz, president and CEO of the U.S. 4A’s. “Agencies are not banks, they have the same needs as they businesses who are asking them for relief; they have people and vendors to pay.”
Aside from better payment terms, the newly launched VoxComm outlined a few of the issues for agencies it will focus on, including speaking up for the power of creativity to drive business results, and to resist some of the trends and practices that many agencies consider harmful.
“We stand for creativity at the heart of the application of data and new technologies, not as an afterthought—agencies and clients should be running towards creativity, not away from it,” it states.
It adds: “We will promote good practice, but speak out where we see bad practice, value-destroying behaviours to the ultimate disbenefit of our clients, as well as agencies.”
*This story has been corrected. The 4As are part of the association, not the ANA.