Long-Payment Terms Bad For Social Media

Procter & Gamble is looking to move its payment terms from 45 days to 75 days, according to the Wall Street Journal. GE pays its bills on a standard net 120 -- this one I know from personal experience.

And, while there are work-arounds that are easier for larger agencies to take advantage of (like bridge payments from banks), these work-arounds are harder for smaller and newer agencies.

That's not good for social media marketing.

Social media changes at a rapid pace -- a pace requiring change that is often difficult for larger agencies to keep up with. While I know plenty of individuals at large companies who can keep up with this change, I'm talking about the actual agency structure.

Often it takes a newer, smaller and more nimble agency to develop the new processes and structures that create efficiencies in a rapidly changing marketplace like social media.

However, the best and brightest who are thinking of going out on their own to start social-media-centric agencies are going to find their cash flow increasingly squeezed if they have to operate on terms of net 75-120 days. No matter how much these folks are the best or the brightest, cash is often more important than brains in a new startup.



While running a small agency, I've walked away from business due to bad payment terms. And I know I'm not the only one.

I understand these moves help companies like P&G and GE open up cash flow themselves to invest in infrastructure, but lately many of these companies are using it as a method for financing stock buybacks and dividend payouts.

Basically, they are using their suppliers to pay their stockholders.

I submit that a better, long-term strategy would be to free up capital to pay suppliers faster and incentivize them to perform at higher levels. “Higher levels of performance” is another way of saying higher levels of results, which of course result in higher profits.

Those profits are what should be used for stock buybacks and dividend payouts. Otherwise, the businesses are using financing terms to fake increased profitability. This is simply bad long-term thinking, confuses the true state of affairs for stockholders, and limits the companies' abilities to engage with the newer suppliers that can't handle the payment terms.

When are we going to learn that short-term financial thinking rarely benefits the long term?

Eventually you have to pay the piper. So let's start by paying suppliers a little more quickly.

5 comments about "Long-Payment Terms Bad For Social Media".
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  1. Tom O'Brien from NWPS, May 7, 2013 at 2:42 p.m.

    Everyone should do it like Microsoft does - they offer to pay in 10 days if you take a 2% discount.

    Hate being a banker for P&G or GM or Kraft or any F500 client - but they will use their power.


  2. Michael Shepherd from The Shepherd Group, Inc., May 7, 2013 at 3:42 p.m.

    Hard to argue with the spirit of Bryan's argument. As a small agency owner, I've certainly been pinched when working with bigger clients. What P&G's move does is further stratify the agency-client relationship, relegating boutique firms to smaller (and, on balance, riskier) companies and building an economic moat for the big guys. The mega agencies play no small role in this caper by routinely paying vendors - particularly media - on a 90 to 120 day-basis and drawing interest on the "float." The multinationals are effectively saying, "If anybody is going to profit from our cash, it will be us." Those who hold the gold, make the rules.

  3. Bruce May from Bizperity, May 7, 2013 at 5:07 p.m.

    As we say in Texas, this ain't my first rodeo. The Microsoft offer is a nice idea and I may try it in reverse myself. Big dogs have no shame in this regard so you usually have to play the game their way or walk away and focus your business on smaller clients. There is no honor among thieves.... just don't tell them that's what I call this. I wouldn't want to hurt their feelings.

  4. Jeff Domansky from Peak Communications Inc, May 7, 2013 at 10:57 p.m.

    Let's see. P&G comes to my agency and says help me manage my crisis now. Or asks us to come up with a brilliant idea to generate instant results via social media. Then, you can wait 90-120+ days to be paid. And your agency's even smaller suppliers? You can bet P&G don't wait 120+ to be paid by THEIR customers. No surprise here. Just another illustration of big guys pounding little guys.

  5. Pete Austin from Fresh Relevance, May 8, 2013 at 5:08 a.m.

    @Bryan: Never, never, never walk away from business. If money now is much more valuable to you than money in 120 days, charge a realistic base price plus differential pricing such as a 10% discount for cash. If clients are too stubborn to take a huge discount, let them walk away.

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