UK agency body the IPA has joined a global alliance – which also includes the American Association of Advertising Agencies – in exposing the hypocrisy of many client companies, who big up their own “corporate social responsibility” record yet use bullying tactics to force agencies into longer payment terms, leaving them struggling to pay staff and freelancers.
The organisation, dubbed VoxComm, estimates that Fortune Global 500 firms spend around $20bn a year on CSR activities, but many are now using the Covid-19 pandemic as an excuse squeeze the life out of their agencies and other marketing services suppliers.
VoxComm said that it had heard from members all around the world that many of those same “corporately responsible” companies are using the current crisis to delay paying their agencies, adding that late payment is a “pernicious habit that even cash-rich companies employ to falsely enhance their liquidity ratios [and is] directly at odds with their avowed policy of CSR”.
In a statement, the organisation added: “These companies bully agencies into longer payment terms or just flagrantly flout contractual payment terms. The unintended consequences mean agencies in turn struggle to meet payroll – often 75% of their costs.
“Then [they] have to delay paying their freelancers and subcontractors (who have been hired to work directly for these clients). These are often niche and diverse community-based media owners, as well as voiceover artists, photographers, illustrators etc. Their fees are their salaries. It’s what pays the rent and what puts food on the table.
“Agency associations around the world have come together to call on members’ clients to seek agreement on payment terms that support a positive and mutually beneficial relationship. Together we can support the sector and those that rely on our industry for their livelihood.”
IPA director general Paul Bainsfair added: “The IPA is delighted to be part of this worldwide initiative. I have said many times that late payment should not be presented as an ‘understandable action’ when most of the big companies that do it do not have any liquidity issues. When agencies have to wait for money then their suppliers (many sole traders who do not carry much or any working capital) have to wait for their money.
“So the big companies who boast about their social responsibility are effectively causing real harm to the people that have been employed on their behalf. Late payment should never been seen as an acceptable business practice.
“What is acceptable, and in times of crises like now, is a working dialogue with your agency as to how to navigate a jointly agreed way forward if cash flow is a real issue. It should never be at the expense of an agency’s credit rating or an agency being able to retain its people.”
Earlier this year, a study from fintech business lender MarketFinance revealed that clients were already sitting on payments for creative services companies for an extra month – on top of the all too common 90 days – with the average invoice last year being settled 27 days late, leaving businesses struggling with cashflow issues which could potentially force them to go under.
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