From instalment plans to reviewing requests for extension, the COVID-19 pandemic has put a strain on advertising budgets and there have been reports of clients struggling to pay agencies as a result. It is a known fact that delaying or halting of payments impacts agencies, whose livelihood is dependent on these fees.
One company that understood the struggles faced by small and medium-sized agencies was Unilever. In March, the company extended about US$545 million in cash flow relief to support livelihoods across its extended value chain. CEO Alan Jope said in March that this will be done through early payment for its most vulnerable small and medium-sized suppliers to help them with financial liquidity. It also extended credit to selected small-scale retail customers whose business relies on Unilever, to help them manage and protect jobs.
Separately, Malaysian agencies that A+M spoke to said that their clients largely have been understanding and are paying on time, despite the pandemic and Movement Control Order (MCO). However, for those that still find themselves in tricky situations of having to negotiate new payment terms, here are ways you can go about doing it without burning bridges.
Shaun Tay, co-owner and CEO of FCB Kuala Lumpur, told A+M that requests for extended payment terms are approved on a case by case basis. While FCB has not had any serious issues with client payment, Tay explained that in general, COVID-19 should not be used as an excuse for payment of agency work that was completed and executed long before the pandemic. However, if a client requires work to be done at this current moment amidst the MCO and COVID-19, and requires extended payment terms, Tay is likely to agree - albeit on a case by case basis.
"If we need to do something now to help our clients, we can discuss about payment terms moving forward. And I will know how to better manage my cost. As an agency, we can do the work but the clients have to be prepared to reduce production expectations," he explained. While Tay is open to negotiating extended payment terms, he said clients and agencies need to work towards a certain date.
Ambiguity is the devil in all of this.
According to him, both parties can work on an instalment payment plan, as this enables agencies to forecast a certain amount of revenue. Also, agencies should speak to clients and understand what is impacting the payments - the COVID-19 pandemic or the MCO? Tay explained that while these two aspects intertwine at times, overall, they are two different but concurrent issues. While the pandemic will surely impact revenues and certain costs will need to be relooked, MCO on the other hand results in operational matters such as payment processing and approval not being cleared on time.
"If everyone compromises, takes a bit of a sacrifice and a mutually beneficial agreement comes about from it, we will all get out of this," Tay said. He added that if agencies, for example, agree to an extended payment term, clients can in turn reciprocate by accelerating the payment process at a later date when they are able to do so.
Meanwhile, a top executive at a firm in Malaysia also told A+M on the condition of anonymity that his agency is flexible with its payment terms but also on a case by case situation. The agency has already sent a letter to all clients, reminding them of the spirit of their partnership.
"If [clients] play hardball, you need to figure out what your boundaries are. A very tiny percentage of our clients have asked for an extension and most clients have been fair and understanding," the executive added. That said, the agency is also putting its foot down and taking a tough stance with those "who are being unfair", making requests such as a bigger credit term or a late payment of up to three months.
Mutual respect at the heart of it all
The concept of mutual respect and understanding between clients and agencies is certainly put to the test in such a trying time. Khairudin Rahim, CEO of the 4As, said agencies have overheads to pay and if clients view their partnerships with agencies as a genuine one, they will understand the predicament that agencies are in. Clients, he added, should not be engaging agencies for work without paying.
Clients should not see [agencies] at the bottom of the food chain.
Should a change in payment terms be required, Khairudin advises clients and agencies to have face to face discussions.
Also weighing in on the issue was principal and co-founder of R3, Shufen Goh, who said if there is still work going on, it is a good thing and payment is just a matter of when the agencies get paid for the service. "If clients are totally cutting spend, the thing that will be hit most is the media budget," she said. Goh added that if agencies are remunerated on a fee model, the client may cut media spend but can still use time to create the work that may be aired later or run later. There is still productive work to be done by agencies they can bill for and usually, agency fees are not the most significant part of the marketer's budget, she said.
"The client may decide not to advertise but use the time to create work or plan recovery strategies. That work being down now still needs to be recognised and agencies need to be paid for that," she explained.
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