Agency Remuneration / Agency Compensation Archives

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.

Definitely not.

Is this what clients really mean by wanting agencies to be their partners?

Probably not.

Yet here we have another strain on client-agency relationships.

Our response to an article that ran in today’s Ad Age about the “4A’s Missive Sent to Search Consultants Argues for New Agreements in New-Business Pitch Contracts”

Rather than trying to put the onus on consultants to add a “creative ownership” clause to its contract with the client, how about if the agencies refuse to sign any mutual confidentiality contracts that have clauses transferring the ownership of agency pitch IP to clients without compensation.

We also believe this is a telltale sign of how a client views the agency relationship and work product – if they don’t respect it now, it’s not going to get better later. This is also the kind of client we prefer not to do business with.

Honestly, we’ve never come across a situation where the client did not understand that any work shown by an agency during a pitch is still the IP of that agency unless some monetary consideration is negotiated. It’s not like the pitch work is a new business tchotchke.

Tag Archives: Agency Remuneration / Agency Compensation

When did Agencies and Vendors become banks for their Clients?

Increased pressure from brands on their agencies and vendors to extend payment windows is greater than ever

Comment on Ad Age Article “Agencies Look to Defend Intellectual Property Rights in Reviews”

Our response to an article that ran in today’s Ad Age about the “4A’s Missive Sent to Search Consultants Argues for New Agreements in New-Business Pitch Contracts”