As big marketers like Procter
& Gamble Co. and Mondelez stretch payment terms to 75
and 120 days respectively, the entire industry -- from agencies to
production to media companies -- is feeling the effects.
And it's a bitter pill to swallow for many down the food chain.
While those marketers have more cash to offer their shareholders
through dividends and stock repurchases, agencies and others are
left wondering, "What about our investors and employees?"
The situation can leave another bad taste in a vendor's mouth:
the idea that they're essentially serving as a bank, extending a
line of credit to clients that have the financial wherewithal to
pay in a more timely fashion but have decided they have more
NOT THE BEST RESULTS
Sanford C. Bernstein analyst Ali Dibadj said the need to
preserve cash to help finance dividends and share repurchases is
one likely factor behind efforts to stretch payments, because
P&G doesn't need more for other purposes and can borrow
short-term for close to nothing if it did.
"When growth is hard to come by, you do what you can," Mr.
Dibadj said, noting the share repurchases have been well-received
by Wall Street.
But that choice may ultimately raise costs, lower quality and
damage relationships, ad-industry executives say.
P&G and others have tried for years to achieve
most-favorable-client status in order to attract the best agency
talent. But if they end up paying more slowly than other clients,
former P&G procurement executive and now consultant Gerry
Preece said, they may not get the best talent because agency
executives will be reluctant to put top talent on their
A P&G spokesman said in an e-mail that the company is
working with agencies and others in a sense of "collaboration,"
adding that the "supply-chain financing" P&G is helping
establish will allow companies to leverage P&G's strong credit
rating to get paid faster through banks using P&G's receivables
"If the credit market has tightened for smaller companies," he
said, "then this program could be even more attractive."
For its part, Mondelez said 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."
Slower pay is spawning new ways of coping, like generating
purchase orders for production well before a project is ready and
considering receivables financing, a practice once rare in
Even with financing programs like P&G's, slower pay means
higher interest costs for agencies, said Pivotal Research Group
analyst Brian Wieser. He sees agencies trying to preserve their
margins by raising fees or lowering expenses by putting less or
lower-cost talent on accounts that pay more slowly.
Of course, agencies can always say no. But Mr. Wieser and others
doubt many will do so over extended pay terms. Losing a major
account always stings, especially for the public holding companies
whose stock can be badly rattled by that kind of news.
Former P&G Global Marketing Officer Jim Stengel, now a
consultant, noted that it took some wooing for P&G to bring
Wieden & Kennedy into the fold
last decade. "Wieden is still private, so they can do what they
want," he said. "And I cannot imagine P&G would want to lose
them, with the Olympics work. That would not be good."
InBev was one of the first marketers to extend payment
terms, implementing a 120-day policy in 2009. Brett Colbert, a
former A-B InBev employee who oversaw the brewer's global
procurement, now has a different perspective on the issue as the
chief procurement officer for agency holding company MDC
"Something that may have seemed like a good idea then did not
deliver the best results," he said. "The best result remains that
you pay the best people when they need to get paid based on an
industry best practice."
An executive with a marketing-tech startup said 60 days has
replaced 30 days as the standard for when payments are received.
Add to that the 60 to 90 days it takes to generate billable work
for a new client and it can mean five months before any cash
arrives. The bright side, however, is that venture investors see
that as "a good problem to have" because it means that the startup
is generating new business.
Officially, at least, media companies aren't budging from their
payment terms, though executives of two media companies said late
payment from advertisers is business as usual these days. "Of
course we're getting paid later," said one. But, the exec added,
"we always get paid."
One TV executive noted that there's an incentive for advertisers
to not stretch their TV payment terms -- if the network doesn't get
paid in a timely matter, the ads don't run. (Of course, it's hard
to imagine any network telling that to the world's biggest
A media trade association executive called slower payment a
Bonnier Corp., which runs Gillette ads in Field and Stream and
Science, has not felt P&G's decision to lengthen the
amount of time it takes to pay agencies, according to Bonnier Exec
VP Eric Zinczenko. But if Bonnier heard overtures from P&G or
any of its largest media partners about extending their payment
terms, the company would be "sensitive ... and would consider
adjusting to help their business needs," Mr. Zinczenko said. "That
said, we don't see any reason to deviate from our current [payment]
term," he added. "It's not an issue at this time."
A spokesperson for Parade magazine also said it has
not heard from P&G about extending its payment term.
Although terms vary from company to company, magazines, on
average, expect advertisers to pay in 60 days or sooner, according
to Chris Kevorkian, chief marketing officer at the MPA-Association
of Magazine Media. Bonnier and Parade give advertisers 30 days; The
New York Times expects payment from print advertisers in 15 days
and digital subscribers in 30 days; The Wall Street Journal
requires 30 days from both print and digital advertisers. Two of
the largest digital-only publishers -- Mashable and BuzzFeed --
said they expect payment from advertisers in 30 days, which is the
standard set by the Interactive Advertising Bureau. A Mashable
spokesperson said the website might give advertisers as many as 60
days when it's a bigger job.
Despite the standards that publishers set, billing cycles are
becoming more uneven partly because of the number of advertising
venues to consider. For instance, an advertiser might appear in
print, online and in tablet editions, or work with a publisher to
stage an event.
"If we're executing an event for a client and there are startup
costs, the term isn't 30 days—it's now," said Bonnier's Mr.
HURTING WHOLE SUPPLY CHAIN
At the tail end of the advertising ecosystem -- production --
slower pay has become a growing issue for an industry made up
heavily of smaller players with thinner margins.
Union contracts call for labor to be paid in two weeks or else
the company is fined, but one production executive said, "We get
paid sometimes months afterward, so we are floating billion-dollar
agency networks and companies sometimes millions of dollars."
Stephen Dickstein, founder and CEO in Recommended Media and
former president of productions houses Partizan and Propaganda
Films, said 3% to 5% net margins are the norm in an
industry where people used to bank on a strong cash flow that's
becoming ever slower.
Mr. Dickstein said he thinks "there will be finance products
that will bridge the payment schedules, and there will be a cost to
that." Even if it's a 1% to 2% interest rate, that's a lot for
companies operating on thin margins, so they'll be forced to try
In some countries, such as Italy and Poland, slow payment has
led to consolidation into better-funded companies that Mr.
Dickstein said has hurt creativity.
It's standard practice for commercial-production companies to
seek 75% of the project costs up front, which is meant to at least
cover the union labor, said Judy Dusterberg, VP of
production-consulting company MRA Services, Cincinnati. But with
payments having largely stretched to 60 days from 30 in recent
years, she said, that's added to pressure on production houses.
Agencies can get squeezed on financing production if they have
to front the money to produce something then wait for months to get
paid by a client, which MDC's Mr. Colbert said affects "the whole
The fact that it can take another 60 to 90 days to generate
purchase orders because of "rigid payment systems" on the marketer
side makes it hard to do anything quickly, said Ms. Dusterberg. So
agencies increasingly do estimates and start the purchase-order
process well before creative details are complete.
"So the money now will roll into the agency coffers in time for
the award of the project," she said. "Agencies for years would put
the money out and wait for clients to get money to them. But
because of the long lead times to receive money, it's made a big
change in the whole business."
CONTRIBUTING: MICHAEL SEBASTIAN, E.J. SCHULTZ, LAUREL WENTZ,
RUPAL PAREKH, ALEXANDRA BRUELL, ANN-CHRISTINE DIAZ
~ ~ ~
CORRECTION: An earlier
version of this article incorrectly credited Brett Colbert, chief
procurement officer of MDC Partners, with saying that venture
investors see delayed billings is a "good problem to have." The
comment was made by an executive with a marketing-tech