For years, a key sticking point in the agency-advertiser relationship has been payment terms, with some clients increasingly being more aggressive in seeking extended terms, in some cases up to 120 days or more. This applies not only for services rendered but also for demands that agencies cover the payment for media buys for extended periods.
Now the 4A’s has issued guidance urging agencies to strongly resist requests for extended payment terms for clients, asserting that clients get all the benefits from the practice while agencies risk harming their business models and assuming costs and losses they should not have to bear.
“Anything beyond the 30-day cycle is incompatible with the typical agency commercial model,” the 4A’s states in its new report, “The Ripple Effect Of Extending Payment Terms.” As for lending clients money to pay vendors for their media buys, the group calls that practice “particularly destructive,” forcing agencies to act as banks to their “usually better capitalized and profitable clients.”
It’s not just agencies who lose, the report asserts – so do consumers who are likely to pay for inefficiencies in “sub-optimal” financial relationships between agencies and clients.
In advocating 30-day terms, 4A’s is not a lone voice in the industry. It cites the World Federation Of Advertisers, the UK’s IPA agency trade group and advertiser consultant ID Comms as supporting 30-day terms as the appropriate standard.
While the Association of National Advertisers does not support specific payment practices, the 4A’s notes that in its 2020 study on payment terms the ANA noted that extended terms “often come with consequences, including strained relationships with vendors, reduction in flexibility and high prices.”
Client-side marketers, the ANA added, “need to consider what is fair and how they would want to be treated. If the payment term they are suggesting to their suppliers would not be acceptable to them as suppliers, a reconsideration might be in order.”
The 4A’s notes that according to studies by the ANA and WFA, done in 2020 and 2022 respectively, average payment terms average around 60 days, up from the 30-day average reported in 4A’s studies from 2010 and 2013.
“Clearly, if left unchecked, clients will continue to pressure agencies for increased terms until they reach an unsustainable level,” the 4A’s report states.
More from the ‘Ripple Effect’ report can be found here.