How should agencies respond to 'bullying' clients over payment terms?

Pernicious habits… falsely enhancing liquidity… flagrantly flouting contracts… the latest organisation representing agencies, VoxComm, didn’t pull its punches last week in a launch statement accusing some clients of truly terrible behaviour.

VoxComm—which includes the 4A's in Hong Kong and Malaysia, The Communications Council in Australia and the Commercial Communications Council in New Zealand—suggested bad practices have got worse because clients are feeling financial pressure during the coronavirus crisis.

The issue of advertisers changing their payment terms is nothing new: it was there in 2009 when the world fell into a recession. It remained an issue in 2014, when the European Union late payments directive came into force.

Bad behaviour between partners in the advertising ecosystem isn’t confined to clients either.

Rebates from media owners have been an ongoing source of mistrust for years between media agencies and advertisers, which have sometimes suspected their agencies of not always acting in their best interests.

Tackling this problem with more transparent contracts was one of the four key actions called for by Procter & Gamble brand chief Marc Pritchard in a landmark 2017 speech on cleaning up the media supply chain.

VoxComm has directed its ire back to clients. So how should agencies respond to "bullying" clients over payment terms?

Stephan Loerke, chief executive, World Federation of Advertisers

Agreeing payment terms between client and agency is a commercial negotiation and cannot be the outcome of industry standards-setting. That said, WFA has a strong conviction that a sustainable partnership needs to be built on mutual trust and respect, particularly in times of disruption like those we are going through right now. Clients have a long-term interest in working with the best available talent and this can be undermined by short-sighted unilateral decisions.

WFA encourages its members to take a longer-term, holistic view as it’s ultimately going to be what’s best for brand owners and our industry at large. It’s going to be critical that we emerge from this crisis unified rather than divided.

Christian Polman, chief strategy officer, Ebiquity

The reality of the situation is that we are in a painful economic cycle that is affecting both brands and key partners, and includes an entire supply chain of publishers, freelancers, tech providers, production houses and more.

There will be difficult challenges – from payment terms to budget reductions. Yet this is also a time for brands to work in partnership, with an open dialogue, to solve these challenges in a way that minimises the impact, is equitable and preserves a healthy marketing supply chain. This means taking a collaborative approach, while also being practical with regards to contracts and related benefits and deals. Brands and agencies that do this successfully and reach agreement through a combination of pragmatism and fairness will come out stronger long term.

Vlad Komanicky, founding partner, Alchemists

I've worked in big corporates since the late 2000s, when the notion of 120-day payment terms was first introduced, and I have hated it ever since. I genuinely believe it's the wrong thing to do for clients as I'm entirely on board with the notion that agencies should not act as banks to clients.

But it's also essential to look at it from the client's point of view and try to understand why they are asking for this. Longer payment terms positively impact corporate cash flow and make the critical financials better, hence directly contributing to stock price valuation. And how often can marketing (and agencies) genuinely prove the ROI of marketing investment to the company CEOs and CFOs?

Until this happens more regularly, the argument around lower payment terms might, unfortunately, fall on deaf ears. Having said that, some of our clients are going in the opposite direction and one of them even has been offering seven-day payment terms during the Covid crisis to help agencies with cash flow. This sensitive and empathetic demonstration of power should put the bullies to shame.

Lucinda Peniston-Baines, founder and managing partner, The Observatory International

Without question, there are clients out there who are employing bullying tactics towards agencies on payment terms, so this is a welcome initiative by this group of associations to stem the practice. However, for this to work, it needs individual agencies to be resilient too and not break ranks by accepting unreasonable clients’ demands. Unfortunately, agency paranoia that if they say no to a client, another agency will simply pick up the reins, is not without foundation.

Iain Jacob, chair, Cinema First; chair, UKOM; former chief executive, Publicis Media EMEA

The first rule of advertising is to know your audience. For payment terms, the audience is the C-suite, which today has one challenge: that is to survive the pandemic. A CEO or CFO will do everything not to damage a relationship that is seen to be building their enterprise.

The flip side to this is that the less unique and more replaceable that you are seen to be, the more pressure you will receive. Worse still, if you have a track record of rewarding such pressure, or as a CFO friend of mine put it: "If every time I shake the money tree, money falls out, then I will keep shaking."

While you can but applaud the IPA and fellow bodies for creating a manifesto, this is not a moral issue, or at least this is not how the C-suite sees it. It is a reputational challenge that can only be solved by the behaviours of the bigger players in the advertising industry in valuing what they do and their collective approach to living by, not simply claiming, common high professional standards. C-suite reputation takes time to rebuild, but without it you are a replaceable creditor sitting in the CFO’s management programme to improve cash flow.

Paul Bainsfair, director-general, IPA

There’s no doubt that some clients do bully their agencies. Agencies should, of course, stand up to any bullying but that can be easier said than done. It’s hard to walk away from a client if it costs you a serious loss of income. So the best response is a calm rational explanation of why bullying leads to the bully losing out. Bullying is never a good business practice because you make people want to work against you rather than for you. These clients need to understand that the best people in an agency won’t want to work on their accounts. Time, effort and inspiration will go to those clients who value the agencies.

Thankfully, the bullies are in the minority. What we are hearing is that a number of agencies and their clients are increasingly being very creative and flexible in their discussions. These will be the partnerships who have established trust or who are looking to establish trust and are working together to relieve any immediate cash flow issues on both sides. So, for example, they are deferring Q2 payments to Q3 in exchange for committing to a longer-term relationship, longer planning periods and an expanded scope of work. The retainer model seems to be faring best, with commission and pay-as-you-go being the worst type of model in this crisis.

Phil Smith, director-general, ISBA 

It is down to individual advertisers and their agencies to agree specific payment terms and ISBA would not condone advertisers unilaterally changing these and acting outside of their contractual obligations.