Adland must fight against crippling payment terms
If you told your local mechanic who had just fixed your car that you'd pay him "within 120 days", you'd be lucky to leave without swallowing a spanner.
Yet, these are the terms that Mondelez International will impose on its agencies in the US from next month. The purveyor of such morsels as Oreo and Creme Egg says extending payment terms allows it to "better align with industry and make sure we compete on fair terms".
If one was feeling unkind, one could translate this as "we are going to screw down our suppliers, because we know they need the business". But let’s take a more magnanimous view and just say this is further evidence of the power of procurement.
It is certainly a worrying trend. Procter & Gamble is also extending terms from (a more reasonable) 45 days to 75 days, while Anheuser-Busch InBev and Johnson & Johnson have already pushed back payments.
In a former life, I recall Lord Tim Bell, formerly Saatchi & Saatchi’s managing director, telling me that his PR company, Bell Pottinger, always billed clients "all fees in advance". To be fair, the aforementioned advertisers are talking about much larger sums but, even so, the power balance has shifted.
In a recessionary environment, brands will struggle to grow the top line – hence switching focus to their costs. Creative services budgets have now been reduced to the point where it would be self-defeating to cut any deeper, so powerful procurement and finance executives are now looking at cashflow.
But clients should be wary about damaging the ecosystem from which they feed. Most agencies are SMEs that can ill afford to have further financial pressure applied to an already creaking model.
One suspects that some clients still look at flashy central London/New York reception areas and conjure up images of Martini-sipping Mad Men living the high life off their brands. Others will look enviously at the well-publicised salaries of top ad execs such as Sir Martin Sorrell. However, today’s reality is hard-fought negotiation between client and agency, with the latter striving to prove the value that they bring.
So the ad industry must push back hard against these unreasonable payment terms. Any ground conceded will be impossible to regain.
The UK Government must also take a macro view. Many of these consumer goods companies are enjoying global growth and record profitability. And yet the entrepreneurial creative sector, which the Government pays lip service to nurturing, is less robust. It needs some support in resisting the most brutal practice of global capitalism.
This article was first published on campaignlive.co.uk
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