ANA Report Shows Payment Terms for Marketing Services Increased in 2019

  • home
  • /
  • Recent News
  • /
  • ANA Report Shows Payment Terms for Marketing Services Increased in 2019

Key insight:

In 2019, payment terms for a wide range of marketing services—such as research, agency fees, social media, production, broadcasting, programmatic and talent—were either extended or kept the same, according to a new report conducted by the Association of National Advertisers during January 2020.

ANA CEO Bob Liodice said in a statement that the study shows that marketers are reviewing payment terms meticulously, and are not hesitating to enforce changes that they believe are necessary.

“This is especially true regarding terms for agency fees, research, and production, all of which have been lengthened,” Liodice continued.

While historic payment terms for marketing services varied by specific services, the median reported range was between 41.1 and 59.9 days. Compared to a similar ANA study conducted in 2013, the terms for agency fees in 2019 increased by an average of 12.4 days (58.1 days total), and terms for research in 2019 increased by an average of 15.9 days (59.9 days total).

A total of 109 client-side marketers, all members of ANA’s marketing and media committees, participated in the quantitative survey. Of those respondents, 37% reported extending payment terms, while 18% reported shortening terms and 91% reported keeping payment terms the same. Per the report, the numbers are greater than 100% because a given marketer could extend payment terms for one service, shorten for another or stay the same for others. Almost 30% of participants reported that they are “very/somewhat” likely to change their payment terms for services within the next year, and 14% reported that they are “very likely” to do so. Only about 20% of participants reported that their businesses have a discount program for early payment or offer supply chain financing to advertising and marketing vendors.

The study revealed that the main reason for extending primary terms was to improve marketers’ cash flow, whereas payment term deductions were almost always initiated by finance (procurement’s role was to implement those new terms).

While ANA’s study found that extended payment terms do, for the most part, positively affect cash flow, they can also damage relationships with vendors, as noted by 38% of participants. Moreover, they can reduce flexibility, lead to higher prices, push vulnerable suppliers into insolvency and strain internal relationships.

Marla Kaplowitz, president and CEO, 4A’s, said in the study that “experience reflects that extended payment terms will result in elevated supplier pricing and reduced supplier choice. A client-agency relationship where parties ‘win’ financially, achieves the best results.”

The ANA recommended that factors such as length of relationship, services provided, the percent of revenue the marketer represents to the supplier, the timeliness of invoicing by the marketer and the financial status of the supplier should all be considered when writing up payment terms or warranting a change to the length of a current payment period. Both marketers and smaller suppliers should proceed with extended payment terms with caution to ensure that all aspects of their business relationship are sustainable.

A marker of relationships 

Last June, Minneapolis-based CPG giant General Mills began seeking new creative talent to help promote its many brands, but agencies balked at the conditions listed in the RFP, including a 120-day payment period and no compensation for the pitch process. A significant concern of these lengthy payment periods is the potential lack of compensation for an agency’s intellectual property.

The agency-vendor relationship, as well as the relationship between agencies and publishers or ad tech vendors, can go sour due to prolonged payment terms.

Business models and the livelihoods of smaller players in the marketing supply chain, like agencies, research companies, production companies and editorial houses, can all be threatened by extended terms because they require a consistent and predictable cash flow and often do not have access to large lines of credit.

Almost six years ago, AB InBev, P&G, Mars, and Mondelez, began extending their payment period by 120 days, and last year, Coca-Cola recently revised their payment period policy to 120 days. In 2015, fragrance brand Coty stretched the payment period to 150 days before paying its partners.

In 2018, Chrysler pushed its extended payment terms window to 180 days.

Source link

  • Share:

Leave a Comment

sing in to post your comment or sign-up if you dont have any account.