VoxComm, an alliance between advertising agency associations including Association of Accredited Advertising Agents (4As Malaysia), Association of American Advertising Agencies (4As), European Association of Communication Agencies (EACA), and Institute of Practitioners in Advertising (IPA), has called out late payment by advertisers as "irresponsible".
Titled "Late Payment. It’s not smart. It’s irresponsible", the joint statement by VoxComm said it has heard from members worldwide that many companies are using the COVID-19 crisis to delay paying their agencies. The alliance added:
Late payment is a pernicious habit that even cash rich companies employ to falsely enhance their liquidity ratios.
VoxComm added that Fortune Global 500 firms spend around US$20 billion a year on CSR activities. Citing research, VoxComm said various forms of prosocial incentives such as workers getting rewarded not with money but with the firm engaging in some act to benefit society, increases productivity in simple and complex tasks, increase retention, and even lower employees’ wage demands.
"With the world trying to come to terms with the COVID-19 pandemic one would expect this to be even more true than ever before. And yet we are hearing from our members all around the world that many of those same 'corporately responsible' companies are using the crisis to delay paying their agencies," it said.
According to VoxComm, such a practice is "directly at odds with [the companies'] avowed policy of CSR". By doing so, the alliance added that agencies are being asked to act as banks for bigger client companies.
"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 have to delay paying their freelancers and sub-contractors who have been hired to work directly for these clients," VoxComm said.
It added that these are often niche and diverse community-based media owners as well as voice over artists, photographers, and illustrators, among others. "Their fees are their salaries. It is what pays the rent and what puts food on the table," the alliance said.
VoxComm also revealed a list of advertising agency association which have thrown their weight behind the joint statement. These associations include 4As Malaysia, Hong Kong, US, as well as Alianza por el Valor Estratégico de las Marcas from Mexico, the Brazilian Association of Advertising Agencies, and The Communications Council from Australia, among others.
Stephan Loerke, CEO, World Federation of Advertisers, said: "It cannot be in clients’ long-term interest, when reputation is so critical to ensuring you can work with the best possible talent, to unfairly extend payment terms."
"I’ll be perfectly blunt: I think there are situations which are unfair and cross the line, and I am not a proponent of continuing to extend terms. There are some situations which have broached into unfair territory and there needs to be a reckoning between clients and agencies to what is reasonable and sustainable over the long term and stick with that," Bob Liodice, CEO, Association of National Advertisers Campaign, added.
The COVID-19 situation has caused some ad agencies to struggle with payments. Agency heads have previously told A+M that with advertising budgets cut for many, clients are requesting for reviewing of payment terms. As the dependency on digital media continues to grow, agencies have been turning to Facebook and Google for help - not only for business resources but also help for the extension of payment terms. One Malaysian digital agency head said it is currently carrying out ad spend on a monthly basis on Facebook but so far, there is no existing support for agencies in terms of payment. He added that while Facebook has a business resource hub to help brands and agencies navigate this challenging times, the actual issue of the extension of payment terms for agencies has not been addressed and he has also yet to hear back from Facebook and Google about the ad grants and credits.
Last month, in efforts to help advertising agencies in Malaysia, 4As Malaysia reduced and, in some cases, waive its annual membership levy for 2020, to ameliorate the impact of COVID-19 on its member agencies. Agencies with an annual revenue of less than RM3 million will be granted a levy reduction of 100%, while agencies with an annual revenue of RM9 million and above will be granted a levy reduction of 25%. All other member agencies will receive either a 50% or 75% levy reduction, depending on their revenue tier.
4As Malaysia on ad world brain drain: Agencies need to create 'stickiness'
4As slams advertisers compressing pitch timelines, says 'no favours' done