Can You Afford New Advertising Accounts?
A couple of years ago a Portland digital agency, once a high-flyer, closed its doors because of serious cash flow issues. Their last straw was the amount of cash they used to win and startup a large famous account — and how long it took to get any revenue from the client to offset the cost of pitching and on-boarding.
Before the first client payment ever hit the bank, the agency spent three months pitching; added staff to win the pitch; spent time negotiating a compensation and scope of work agreement while they started to develop the programming to support the client’s program and then added more staff to build the relationship — way before the agency could even get the first invoice out. The agency then had to wait over 90 days to get paid. Not smart.
7 Months – No Pay
So, at the end of the day, the agency was in the hole for about 7 months of costly work before they ever get some moolah. This time-lag does not work for small digital agencies.
Did the client care that the agency couldn’t afford to fund the client’s marketing before receiving the first payment? Of course not. According to an Advertising Age article on clients now extending their payment schedule to 120 days, they still don’t. Try this one on for size.
Mars Seeks 120 Day Payment Terms From Vendors
Mars isn’t alone in asking its agencies to extend a line of credit. According to Advertising Age, Procter & Gamble, Anheuser-Busch InBev, Johnson & Johnson and Mondelez have also extended their payment terms. Will client’s recognize the pain they are inflicting? Don’t bet on it. Even the ANA can’t seem to get its members to behave.
In a report published late last year, the Association of National Advertisers stated that at least four in 10 marketers lengthened payment terms for at least some marketing services in the preceding year.
“Client-side marketers need to consider what is fair and how they would want to be treated,” the ANA report said. “If the payment terms they are suggesting to their suppliers would not be acceptable to them as suppliers, a re-think might be in order.”
What Can An Agency Do?
Yes, this is a tough one since most agencies are not remotely in the driver’s seat. Why?
- Most agencies don’t offer services that are so unique that the client can’t go elsewhere.
- If an agency already has the account, they are at the mercy of their beloved client.
- They are so hungry for new business that they bend over and then lose a strong negotiating position.
But, If they know that the client wants to screw them before they commit to a pitch they can… yes, this one will be hard to believe: NOT pitch.
So, keep how long it will you to get paid in mind when you decide to pitch an account and when you build a one-sided relationship like the one that Mars wants to have with BBDO.
In this case, its seller beware.