June 2, 2013 10:51 pm

Advertising groups resist late payment moves by clients

Advertising agency groups are pushing back against attempts by consumer products companies such as Mondelez International and Procter & Gamble to delay paying their bills for as long as 120 days, despite such clients trying to reassure them that the impact will be limited.

“There is no way we’ll accept,” said one senior advertising executive, who declined to be named because of the sensitivity of an issue causing friction between some of the world’s largest advertisers and their agencies.

“They have to push back because it’s insane,” another industry executive said, adding that marketing companies’ working capital figures showed no sign that rivals were accepting the new terms en masse. “They have to say no,” a third industry member said.

Agencies and other suppliers have been shaken by news that Mondelez, the former Kraft snacks business, plans to move to 120-day payment terms from July 1, after P&G’s push to extend payment from its present 45-day norm to 75 days where local laws allow. Johnson & Johnson and Anheuser-Busch InBev are among other large advertisers to have extended their terms.

Agencies that have to accept slower payment could seek to make up for it in other ways, such as price increases, analysts said. “I’ve heard of a couple of instances that agencies have just said no,” said Bob Liodice of the Association of National Advertisers, whose members spend over $250bn on advertising and marketing. The London-based Institute of Practitioners in Advertising said UK agencies were seeing similar pressures to those in the US, despite a European directive on late payments aiming to cap payment terms at 60 days unless both sides agree otherwise.

Alex Hunter, the IPA’s finance director, said: “It is surely nonsensical that agencies – many of whom are [small and medium enterprises] – should act as banker to these major corporations merely so that these corporate giants can demonstrate strong balance sheets to their analysts each quarter.”

P&G, the world’s largest advertiser, is among those offering suppliers financing to soften the blow of slower payment. By using its AA credit rating to borrow enough to pay its own suppliers and staff, P&G has told agencies they could get payment in as little as 10 days at low interest rates.

P&G’s chief procurement officer, Richard Hughes, told its 70,000 suppliers in April that its supply chain financing could create a “win-win-win for our external partners, P&G, and the banks” that would mitigate the working capital impact and in many cases create value, “by enabling access to low-cost capital for re-

Nancy Hill, of the American Association of Advertising Agencies, cautioned: “What happens when those interest rates go up?” One executive added: “We shouldn’t just be enriching the banking community. It doesn’t make sense for [clients or agencies] to pass margin to the banks.”

Analysts said that the stand-off between agencies and some of their largest clients illustrated the increasing influence of procurement executives in marketing decisions, which has led to tighter cost control.

A recent Citigroup survey of large advertisers found that procurement executives are now involved in 82 per cent of agency reviews, up from 56 per cent in 2010. While analysts expect large advertisers’ spending to increase this year, “any signs of optimism should be seen in the context of cost savings still being a significant focus,” Citigroup said.

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