During the recent time when every industry is having their share of struggle in the pandemic, ad agencies are being deprived of their money by the brands. Brands refuse to pay ad-agencies, they are blaming the COVID crisis, for their non-payment.
This has been declared as “betrayal of trust” by TCC (The Communication Council). Tony Hale the CEO stated that this is just a “Convenient excuse for non-payment.”
Tony further released a statement in which he stated: “We believe this is unacceptable: no client should ever expect its ad agency to bankroll its business.” Adding to it he said, “This is especially relevant during COVID-19 when agencies are having to manage their businesses and cash flows more carefully than ever.”
Communication Council members met to clear this up. This concern has not yet been raised by many, but several brands have been seen adding these clause in their new set of terms and policy, according to the industry insiders.
Media agencies are the most to be affected by these crises. They have registered a downfall of approximately 40% in their bookings. However, the creative agencies are getting good business even during the time of crisis.
Hale, a member at communication council stated:
“It is gratifying to note that the bulk of clients and their ad agencies in this country have been partnering productively to find solutions for businesses who are experiencing genuine cash-flow problems.
“Strong partnerships will always find mutually acceptable ways to overcome challenges by working together.
“However, TCC strongly believes it is an egregious betrayal of trust for any client to deliberately use the COVID-19 crisis as a convenient trigger to delay payment or extend contracted payment terms.”
Due to COVID, many brands are rethinking and re-evaluating their strategy during the crisis. Therefore, several campaigns have been cancelled, delayed, or have been reworked upon.
World Federation of Advertisers reported that large MNC’s will be cutting their advertisement budget, and might not spend on advertisement, for a long period now.
CEO of the Australian Association of National Advertisers (AANA), John Broome said:
“In a crisis, productive strategic partnerships are even more valuable to maintain and foster. Therefore any instances where advertisers are using a crisis to impose additional payment terms on their agency partner is counter-intuitive to me. Fortunately, I do not know of any instances of this happening in Australia.”
Alliance VoxComm a global ad agency has confirmed that many companies are delaying payment due to the crisis.
VoxComm released the following statements:
“Late payment is a pernicious habit that even cash-rich companies employ to falsely enhance their liquidity ratios,” “Agencies are de facto 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.”
VoxComm stated that several companies are stating that they are socially accountable:
“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.
“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).
“These are often niche and diverse community-based media owners as well as voice over artists, photographers, illustrators etc. Their fees are their salaries. It’s what pays the rent and what puts food on the table.
“Extended terms often come with consequences, including strained relationships with vendors, reduction in flexibility, and higher prices. …the business models and livelihoods of smaller players in the marketing supply chain can be threatened by extended terms. Such companies are not banks.”
World Federation of Advertisers CEO, Stephan Loerke: “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.”
Payment Terms report, of the Association of National Advertisers in the US: “Extended terms often come with consequences, including strained relationships with vendors, reduction in flexibility, and higher prices. …the business models and livelihoods of smaller players in the marketing supply chain can be threatened by extended terms. Such companies are not banks.”