Agencies: Please just say 'no' to exploitative payment terms

I recently went to the barbers and asked if they’d mind me paying them a few weeks later so I could make a value decision based on how my hair grew back.

They laughed in my face. And rightly so.

The man was paid for his work there and then. Just like CVS was paid for my chewing gum and water before I left the store. Just like the restaurant owner was paid for my slice before I left her pizzeria. Just like the lawyer was paid for legal advice about my visa (Trump -- we need to talk). Just like advertising agencies should be paid by marketers the moment they spend time, money and resources on creativity.

But, as we know, the latter is a rare sighting in today's world.

Brutal payment terms of more than 120 days and soul-crushing online auctions in which agencies live bid against each other in an onslaught of undercutting savagery is a real and heartbreaking routine.

What unholy exploitation is this? I’ll tell you: The kind that will never stop unless every single agency touched by such terms demand they be treated better. It should be that simple. But it never is.

"Agencies bring talented people together to build brands by helping create meaningful connections with consumers and increase business value through creativity in all forms," said Marla Kaplowitz, president at the 4A’s, speaking to the punishing hoops some marketers make shops jump through.

"This is not how you get the best from a partner or vendor who should be spending their time more productively. This does not motivate or incentivize agencies. And any consultant who represents this approach serves as a reminder that beyond the pitch, they have no vested interest -- financial or otherwise -- in identifying a successful partnership for the future.

"Agencies are businesses too -- they need to invest in people, technology and innovate with new opportunities to support clients and their growth."

Eye-watering payment terms are nothing new.

Back in 2013, the ANA published a report which concluded that 43 percent of its marketer members admitted extending payment dates. This included agency fees, research, and various types of media which were pushed further than the historical terms of between 37.9 and 45.9 days.

Reasons for this were simple and the same today: to improve cash flow. The organization pointed a finger at upper management’s focus on accounts payable, adding: "By far, the finance department and/or the CFO have the most impact in driving payment term changes. The procurement/purchasing area also plays a role."

That report is the last effort made by the ANA to understand this trend. But Group EVP Bill Duggan told Campaign US that it’s back on his radar and the association will survey members in January 2020 to understand how payment policies have evolved. He expects to have some results to share by late Q1 of next year.

Consultant Daniel Jeffries said that, in his experience, "payment terms have nothing to do with procurement" and "are normally set by the finance team and procurement is then left to communicate the news to the agencies/vendors."

He said: "Most procurement professionals hate being in organizations that push long payment terms because they know that one of two things will happen: the agency will find a way of making the money back in a way they don’t understand and; the agency will swallow the cost of longer payment terms and it will impact their long term ability to be successful.

"The other thing to consider is that many procurement folk actively help Their agencies navigate longer payment terms. I have worked for clients where we allowed the agencies to invoice a month early in order to be paid ‘on time.’ It’s all a big game in the end."

There’s a plethora of reasons why shops bow down to outrageous payment terms, not to mention the new business allure of that shiny brand medallion hanging on your agency’s client webpage.

Jeffries said it's "because they’re scared that they won’t be able to come to an agreement with the client and lose the business." He speculated: "There are also a lot of games played on billing cycles that clever agencies can play. Finally, big group agencies can actually afford the risk -- it’s the smaller players that struggle."

Ultimately, when such laughable fixtures are demanded, both parties lose.

It is within the marketers’ best interest to first open themselves up to creative shops which do not normally get exposure because they cannot (or will not) agree to taxing parameters. Twin this with a flexible, fair approach to payment terms and brands will reap the reward of a more mutually beneficial relationship built on greater trust and respect -- fuel for the creative inferno marketers should be sparking, not the woeful campfire they’re barely lighting.

It shows in the work.