Many client companies already stipulate 60-day payment terms, with some even demanding 90 days but Mondelez International, the former Kraft snack food group, is going one step further and extending payment terms to 120 days from July 1.
Procter & Gamble this month told suppliers it was pushing back payments from 45 days to 75 days, following similar extensions at Johnson & Johnson and Anheuser-Busch InBev.
With cashflow issues the number one reason why most businesses fail, the move is likely to mean only agencies which are part of a major group will be able to pitch for larger client work.
A recent survey of British firms by Graydon UK and the Forum of Private Business (FPB) revealed 20% of businesses have gone under as a result of late payments, while 56% have in turn been forced to pay their own suppliers late.
The development has already provoked a strong reaction in the US, with American Association of Advertising Agencies chief executive Nancy Hill saying she fears “this is just the beginning”.
She added: “Once a big company like Procter & Gamble goes public with this, it almost gives permission for other marketers to do it. Clients are asking us to take on risk like an insurance company and take on debt like a bank. Neither of those are what we were set up to do.
Brian Wieser, advertising analyst at Pivotal Research, said the new terms reflected a power shift in marketing as advertisers increasingly cut out agencies and communicate directly with customers through social media. “This is reflective of the constant erosion of the relationship between advertisers and their clients,” Wieser said.
A spokesman for Mondelez told the Financial Times: “Extending our payment terms allows us to better align with industry and make sure we compete on fair grounds, while simultaneously improving transparency and predictability of payment processes.”
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