NEW YORK: The extended payment terms now being offered by major advertisers, such as Procter & Gamble and Mondelez International, have the potential to affect the creativity of advertising, as agencies adopt coping strategies, experts have said.
Brian Wieser, an analyst at Pivotal Research Group, noted that slower payment inevitably means higher interest costs for agencies. He suggested to Advertising Age that one way agencies were seeking to preserve their margins was to reduce expenses by putting lesser talent on those accounts that paid more slowly.
A former P&G procurement executive, Gerry Preece, now a consultant, agreed that agencies would be reluctant to put top staff on such business.
Stephen Dickstein, chief executive of Recommended Media, noted that slow payment in other territories, such as Italy and Poland, had resulted in consolidation into better-funded companies but, he argued, this had hit creativity.
Brett Colbert, chief procurement officer for agency holding company MDC Partners, was clear: "The best result remains that you pay the best people when they need to get paid, based on an industry best practice."
Other strategies being followed include generating early purchase orders. Judy Dusterberg, vice president of production-consulting company MRA Services, said that agencies were now doing estimates and starting the purchase order process long before the creative details were complete.
"So the money now will roll into the agency coffers in time for the award of the project," she said, adding that the long lead times to receive money had "made a big change in the whole business".
P&G has argued that its "supply-chain financing" will enable companies to leverage P&G's strong credit rating to get paid faster through banks using P&G's receivables as collateral.
And Mondelez claimed that extending payment terms to 120 days "allows us to better align with industry and make sure we compete on fair grounds, while simultaneously improving transparency and predictability of payment processes".
Data sourced from Advertising Age; additional content by Warc staff