Bad business payment practices are rarely out of the headlines, whether it’s milk farmers revolting against Morrisons and Asda’s payment cuts or Premier Foods’ notorious “pay to stay” strategy, which asked suppliers for money to stay in business with the firm. Increasingly, these dodgy tactics are starting to hit marketing agencies too, many of which are small startups, where late payments and unreasonably long payment terms can drive an agency out of business.
So how to fight back? That was the question posed at a recent seminar convened by the Guardian, sponsored by the Marketing Agencies Association (MAA) and chaired by business reporter Shane Hickey.
First, a panel of industry experts gave their views, then an invited audience of media and marketing professionals asked questions and shared their thoughts in a lively and passionate discussion.
Marketing agencies aren’t alone in their concerns, said Hickey. Last year, the Institute of Directors conducted a survey that found that 66% of SMEs had experienced problems with late payments. Research from the Federation of Small Businesses also found that one in five small companies had experienced some form of corporate bullying, including late payment and excessively long payment terms.
There was no shortage of examples of bad practice. Panel member Rosie Doggett, procurement adviser to the MAA and founder of Rad Consulting, said that the longest she had had to wait for payment was 287 days: “from a client who is big enough to know better.”
Pitching for Anheuser-Busch InBev
Fellow panel member Scott Knox, managing director of the MAA, cited a recent pitch for brewing company Anheuser-Busch InBev. Agencies pitching for the account had to endure a four-stage online auction, which demanded to know how much agencies would lower their rates, how long they were prepared to wait for their money, how many hours they would work for free, and how much they would give to the company’s corporate social responsibility programme. “It becomes a race to the bottom,” said Knox.
And the problem is getting worse, said panel member Ian Graham, partner at media accountancy firm Kingston Smith, with procurement and finance teams looking for “low-hanging fruit” to pluck in their desire to drive down costs. Agencies are seen as an easy target, he said. Once one company pushes back its payment terms, others quickly follow: “The extreme examples are getting more and more extreme.”
If you go back three or four years, extreme is 90 to 120 days payment terms. Those extremes are getting pushed and that’s having a kind of trickle-down effect on what’s considered to be normal now. When you come out with 60 days payment terms, I think agencies are feeling that’s a reasonably good result. Of course, it’s not, but that’s become more normalised.
There was concern about short-term decisions from the top of a brand’s finance department killing creativity and innovation. “You cannot buy creativity the same way you buy beans,” said audience member David Burton. “It wasn’t too long ago that brands in those [corporate] sectors used to win awards for creativity. Think of Stella Artois. They don’t win awards for that sort of stuff now because the venture capitalists are putting pressure on to deliver very small incremental results, not big results.”
Graham agreed that bad practices are just another obstacle put in the way of small agencies – and that the long-term effect will be a gradual drain of talent away from the creative industries.
As well as potentially driving smaller agencies out of business, or discouraging them from pitching at all, it was proposed that late payments and long payment terms are ultimately damaging to brands themselves, too, whether via bad publicity over their demands or by agencies withdrawing their talent. That’s why marketing departments within big companies should “man up, or woman up,” said panel member Gary Bramall, chief marketing officer at Hailo. He urged marketers within big companies to get their financial colleagues to look at the bigger picture:
The marketers should be saying: if we lose this supplier, we are going to fail to hit our growth targets. They are the ones who hold the relationships, they are the ones in charge of business growth and they are the ones who should be influencing CEOs. The marketers need to get involved.
Late payment legislation
So what are the solutions? There was a general feeling that current late payment legislation isn’t working and neither will the new legislation proposed. Business secretary Sajid Javid recently called late payment “bullying – pure and simple,” but it was felt that his new legislation, which will ask businesses to sign up to a voluntary code and say what their payment terms are, is toothless and will have little effect.
More direct action is needed. Knox told of a recent event organised by industry body, the Chartered Institute of Procurement and Supply (CIPS), in which he met with 25 major brands and asked them to set up an open dialogue with the MAA to discuss the issue of bad procurement practice. Just one brand, Oxfam, agreed. Doggett cited the example of France, where companies that do not pay small businesses within 30 days are fined.
Industry bodies need to get on-side. Panel member Tina Fegent, founder of Tina Fegent Consulting and a member of CIPS’s marketing procurement group, said that CIPS does not agree with late payment and fully supports the new legislation.
However, she stressed that CIPS believes that late payments are also a company cultural problem, and pointed out that agencies also have a responsibility to get good financial intelligence. She said:
I have to say I could probably count on my fingers in 25 years the numbers of decent agencies that have decent finance people that I’ve dealt with.
She pointed out that bad practice can be reported to CIPS, with the offenders risking a dressing-down and stripping of CIPS member status from the ethics committee, but admitted that she wasn’t aware of any instances of this happening.
But it shouldn’t just be down to CIPS, the panel agreed: collective action by all the relevant industry bodies is needed, such as the Direct Marketing Association (DMA) and the Institute of Practitioners in Advertising (IPA) “I think if not through legislation, [change] will have to come through pressure,” said Graham. “I think it’s incumbent on people in this room to give the industry bodies, like the IPA, that mandate to go out there.”
A prenup contract for marketing agencies and clients
What should agencies themselves be doing? Should they be saying no? Audience members had some innovative ideas, such as an agency “prenup” – floated by Robin Bonn, director of content marketing agency Adjust Your Set. This prenup would be a document that sets out to any potential new client what an agency will and will not do. The panel liked this, though there was some concern about what point in the proceedings it might be introduced.
Doggett suggested that agencies on a longlist who intend to do this should get together and decide that they’re all going to whip out their prenup at the same time. This, she thought, might reduce the risk of a single agency bringing it out too early and the client deciding to cross them off the longlist as a result. “You need a critical mass of people who are like-minded,” she said.
It was clear that being the one who stands up against bad payment practices is fraught with difficulty. As Dan Saxby, joint CEO of iris worldwide, pointed out from the audience: “The agencies most at risk do not have the power to say no.” And even larger agencies face significant financial problems when they turn down business, as it may be coming from a client with whom they are already working.
Knox said that many medium-sized agencies are reporting that unreasonable payment practices are coming from their top three accounts. Turning down a new piece of business from an existing client is a very difficult decision, he pointed out: “That [money] is people, training and your ability to innovate.”
But, in the end, agencies aren’t entirely powerless when it comes to standing up to the corporate bullies. Collective action – be it by agencies putting pressure on industry bodies, naming and shaming of bad practices, or agencies banding together to say no to corporate bullying – may well be the way forward, attendees agreed.
One thing an agency can do right away is to think hard about how it can develop the best possible ways of working with the client, according to Bramall. “This room is filled with some of the most creative people in London, and you should be thinking about how you could better shape relationships,” he said.
For him, good relationship building is always more likely to help agencies find better ways of working with brands than legislation. He said that if a relationship is good, and it’s valued by both the agency and the brand, “you’ll find that there’s not many questions that come up around payment.”
On the panel
- Shane Hickey, business journalist, the Guardian (chair)
- Ian Graham, partner, Kingston Smith
- Scott Knox, managing director, Marketing Agencies Association
- Gary Bramall, chief marketing officer, Hailo
- Tina Fegent, marketing procurement consultant, Tina Fegent Consulting
- Rosie Doggett, marketing procurement director, RAD Consulting
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