Wed, 20 May 2020 12:33:01 GMT
The IPA has joined forces with key agency associations from around the world to issue a global statement on the damaging effects of late payments. The statement calls for each members’ clients to seek agreement on payment terms that support a positive and mutually beneficial relationship. This is a collective action to support the sector and those that rely on the advertising industry for their livelihood.
Says Paul Bainsfair, director general, IPA: “The IPA is delighted to be part of this worldwide initiative. 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. When agencies have to wait for money then their suppliers (many sole traders who do not carry much or any working capital) have to wait for their money. So the big companies who boast about their social responsibility are effectively causing real harm to the people that have been employed on their behalf. Late payment should never been seen as an acceptable business practice. What is acceptable, and in times of crises like now, is a working dialogue with your agency as to how to navigate a jointly agreed way forward if cash flow is a real issue. It should never be at the expense of an agency’s credit rating or an agency being able to retain its people.”
VoxComm also released a statement about the impact of late payments.
“Extended terms often come with consequences, including strained relationships with vendors, reduction in flexibility, and higher prices. ...the business models and livelihoods of smaller players in the marketing supply chain can be threatened by extended terms. Such companies are not banks.” - Association of National Advertisers’ Payment Terms report, March 2020.
Pick up any company’s annual report and there will be a section on how important it is to be socially responsible. Companies know that both their customers and employees expect them to do the right thing. For people. For the planet. According to the March 2020 Edelman Trust Barometer Survey, 90% of people said companies and brands need to protect the financial well-being of employees and suppliers.
They know that if they don’t, it won’t just be bad for PR. It will be bad for sales. It will be hard to hire and retain talent as well as customers.
Today, Fortune Global 500 firms spend around $20 billion a year on CSR activities.
Research has shown that various forms of prosocial incentives (workers get rewarded not with money, but with the firm engaging in some act to benefit society) indeed increase productivity in simple and complex tasks, increase retention, and even lower employees’ wage demands.
With the World trying to come to terms with the Covid-19 pandemic one would expect this to be even more true than ever before.
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. Late payment is a pernicious habit that even cash rich companies employ to falsely enhance their liquidity ratios.
It is directly at odds with their avowed policy of CSR. Agencies are de facto being asked to act as Banks for bigger Client companies. These companies bully agencies into longer payment terms or just flagrantly flout contractual payment terms. The unintended consequences mean agencies in-turn struggle to meet payroll, often 75% of their costs. Then have to delay paying their freelancers and sub- contractors (who have been hired to work directly for these clients). These are often niche and diverse community-based media owners as well as voice over artists, photographers, illustrators etc. Their fees are their salaries. It’s what pays the rent and what puts food on the table.
Research shows that if employees think their company is using CSR initiatives instrumentally — trying to engage in prosocial activities only to benefit from it — then they’ll react negatively and put in less effort. In other words, while these initiatives will benefit society, they will backfire for companies if people think they’re being used for the wrong reasons.
"It cannot be in clients’ long-term interest, when reputation is so critical to ensuring you can work with the best possible talent, to unfairly extend payment terms." said Stephan Loerke, CEO, World Federation of Advertisers, May 2020.
"I’ll be perfectly blunt: I think there are situations which are unfair and cross the line, and I am not a proponent of continuing to extend terms. There are some situations which have broached into unfair territory and there needs to be a reckoning between clients and agencies to what is reasonable and sustainable over the long term and stick with that." said Bob Liodice, CEO, Association of National Advertisers Campaign, May 2020.
The below named agency associations around the world have come together to call on members’ clients to seek agreement on payment terms that support a positive and mutually beneficial relationship. Together we can support the sector and those that rely on our industry for their livelihood.