The Association of Independent Commercial Producers said today that brands currently owe more than $200 million in late payments to its production partners, and that these debts pose a serious threat to the livelihood of a production community struggling to weather the coronavirus pandemic. The AICP is a nonprofit dedicated to supporting the U.S. advertising’s production and post-production community.
“Marketers and their agencies need to ensure that production and post partners are paid immediately for work already completed,” said AICP President and CEO Matt Miller in a statement. “Cash flow for most live action production companies is, like work, drying up, with post production slowing as they finish recently produced work so it’s more urgent than ever that these payments are made.”
Late last week, the AICP conducted a poll of more than 500 members during a virtual town hall over Zoom. Participants said the most immediate concern was the issue of outstanding receivables. Twenty-eight percent of the companies reported that they are owed in excess of $1 million; another 23 percent are owed between $500,000 and $1 million; and 16% reported they are owed between $250,000 and $500,000. Another 18 percent said they are owed between $100,000 and $250,000. The remainder was owed less than $100,000.
AICP also polled members as to how late the payments were. In total, 29 percent reported that payments were 45 or more days late (per contracted terms) while one-third were 30-45 days late. The AICP extrapolated that conservatively, this indicated debts owed are well in excess of $200 million.
A recent study by the Association of National Advertisers showed that brands’ payment terms for agencies, production companies and other vendors have been growing. Payment terms for agencies jumped to 58.1 days in 2019 from 45.7 in 2013. Those for production companies went from 44.9 from 37.9 in the same period. The study also found that in 2019, 21% of marketers have unilaterally extended their payment terms for production services.
One of the conclusions of the study was that the extended payment terms could threaten the livelihoods of the smaller players in the marketing supply chain, including some agencies, production companies and editorial houses. “Such companies are not banks,” the ANA said in its statement on the report. “They require predictable cash flow, often don’t have access to large lines of credit and have pricing models that do no reflect the cost of their business resulting from extended terms.”
The current environment imposed by the pandemic only underscores what Miller calls the “bad behavior” of “scofflaw clients” taking advantage of the marketing supply chain.
“I can’t say it was entirely surprising, but it was certainly shocking to see the scale of it,” Miller told Ad Age. “When you look at clients and their payment system through agencies—that somehow through the process they’re using small companies [production and post companies] as virtual banks, that can’t happen. At a time when the entire world is in flux, marketers have to step up and pay their bills.”
“We didn’t even ask about overall receivables due,” Miller adds about the figures found in the poll. “These [numbers] were not even about jobs that were just recently completed—that was the big concern.”
The AICP’s poll also showed that 39 percent of the respondents had “no jobs” in the works and 25 percent had three or more in the works. The latter comprises a range of services including bidding, post work completion, digital production or working on contingency plans—all of which would require cash flow so that production and post shops can continue supporting its staff and operations.
“While marketers generally extend payment terms to derive better cash flow, ANA recognizes that payment term extensions can have negative consequences," Bill Duggan, group EVP-ANA told Ad Age in response to the AICP's poll. "The business models and livelihoods of smaller players in the marketing supply chain–including production and editorial houses—can be threatened by extended terms. Such companies are not banks and require a predictable cash flow. Both marketers and smaller suppliers, in particular, need to proceed with caution to ensure that the terms of their relationship—including payment terms—are sustainable.”
“This money is out there and the production community needs it,” Miller says. “Ultimately, everyone, including marketers, are going to want to get back to a normal level of work as quickly as possible. But we’ll need the infrastructure to do that. All this money that’s owed that could keep that infrastructure in place will ensure that everyone is going to be in a better place and come out of this strong. It’s irresponsible for marketers to think they can hang on to money they owe.”
Contributing: Jack Neff
