WFA research shows agency services demand different payment terms

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30/10/2013
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During recent months, the advertising trade press has devoted much space to the subject of payment terms. Frequently the coverage has been to claim that advertisers are extending their payment terms with agencies and suppliers, and that this has a knock on effect on the way agencies manage their business. One oft-cited agency boss has been quoted as saying “agencies are not banks.”

To give a rounder picture, and to help advertisers get a better idea of what the trends are in this space, WFA conducted some research during October 2013 in partnership with consulting firm Advertising Production Resources, the full results of which are available below for members. Here are the highlights:

“As a client that supports small businesses we are committed to paying on time.” WFA Member
Unsurprisingly, given current coverage of this issue within the trade press, over half (56%) of the respondents are currently reviewing payment terms. Many respondents continually review payment terms as part of negotiations with all contracts. A result of that might even be a shortening of payment terms (early payment) for a larger discount with the supplier.

60 days is a common benchmark
Just under half (45%) of the respondents commit to pay after 60 days. But for many it varies too much to be able to give an average. For big spend suppliers some respondents apply “supplier financing programs” with banks to aid cash-flow and access to funds for project development. Other advertisers systematically offer multiple payment terms: 7 days, 10 days, 15 days, 20 days, 25 days, 30 days, 45 days and 60 days, depending on the service and goods being purchased. They also offer an option for immediate payment terms on certain purchases. Many consider this a strategic part of standard commercial negotiations with their suppliers.

Different payment terms for different services
Over half of all respondents (55%) have varying payment terms depending on what charge is being covered. For example, media purchase invoices are often mirrored to media vendors' policies. That might be 30 days to 120 days depending on the country, and split between broadcast and non-broadcast. On the other hand, agency fees are often paid differently to this, and similarly agency bonuses are naturally performance related so could be paid at the end of the year, or next year Q1.

Up-front payment for production very common
Funding TV production shoots can be an expensive business. The majority (67%) of respondents have a defined policy on pre-payments in the production space. In the full results members can review funding ratios for “order/casting/offline edit/reconciliation”, but it remains clear that advance payments up to a certain % of the overall cost are common. The rigours put in place by procurement teams can make flexibility for “rush” jobs more challenging, but around 50% of respondents have processes in place that enable these jobs to be financed more quickly than normal.

61 global advertisers responded to the survey, representing 12 commercial categories and 5 regions. Although the number and scale of respondents represents a considerable % of global marketing investment, the results and take-outs should be used only as a guide to current industry practices.

For more trends on payment terms, or to get more information on WFA's work around global marketing procurement please contact Steve Lightfoot: s.lightfoot@wfanet.org


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