Increased pressure from brands on their agencies and vendors to extend payment windows is greater than ever
Mega brands such as General Mills and Chrysler are seemingly throwing their weight around, conducting agency searches of which agency payment terms have reached a new low – or should we say high?
General Mills’ recent creative agency review reportedly demanded a payment window of 120 days. And according to a post on Digiday, “Chrysler succeeded in pushing its payment window to 180 days last fall…And around the same time…a big brand started asking for payment terms of a full year, according to the 4As, which received complaints from creative and media agencies about the terms.”
The client in that latter situation asked agencies to “work out a deal where on paper it looked as if the agencies had agreed to payment terms of one year”. Often this results in having agencies and vendors pre-bill far in advance and reconcile later.
So in reality, cash-flow management has not improved.
At least that’s what occurs with some of our clients and agencies, whether we’re handling a search or modernizing their agency contracts that have to include such burdensome corporate-wide payment windows that go beyond a 30-day period.
The Digiday article further reveals that marketers requiring these abnormally long payment periods assume agencies will get financing to cover the widening payment to expense gap.
Yet the client won’t pay the financing fees.
Clients should realize that such demands, if an agency acquiesces, can become part of the agency overhead – so you’re still paying the finance charges.
Equally troublesome is the use of third-party invoice processing systems that charge agencies for every invoice that is submitted – non-reimbursable of course.
Agencies are in the business of driving brand revenue through their communications expertise, not money-lenders to clients.
Wonder if client-side staff would be okay with being paid 120 days out.
Is this what clients really mean by wanting agencies to be their partners?
Yet here we have another strain on client-agency relationships.
Related content: agency search management, client-agency relationship management, agency roster modeling, agency contract and compensation negotiations.