- Advertisers have tried to improve their cash flow by taking more time than they did in the past decade to pay for marketing services, per a study by the Association of National Advertisers provided to Marketing Dive. The industry group found that payment terms for ad agencies lengthened by 27% to 58 days on average last year from 46 days in 2013.
- Last year, 91% of providers of marketing services kept their payment terms the same, the survey found. About 10% of respondents last year set payment terms of 90 days or more for agency fees and research, before discounts. More than a third (37%) of respondents extended payment terms while 18% reduced them. The percentages don't add up to 100% because marketers varied their payment terms, extending them for some services while cutting others, per the ANA.
- Research vendors had the longest payment terms at about 60 days on average, longer than production companies at 45 days and network broadcasters at 41 days, according to the ANA, which surveyed 109 client-side marketers. Payment terms set the conditions for completing a sale, including when payment is expected.
Marketing services companies have become increasingly concerned about the demands by advertisers to prolong payment terms, spurring the ANA to conduct its most recent survey of client-side marketers, according to its report. Publicly traded companies that are under greater pressure to boost their cash flow are looking for ways to squeeze it from their operations, including services from vendors.
That dynamic can have negative consequences, such as strained relationships with vendors, a reduction in flexibility, higher prices and loss of discounts. The trend also is worrisome for marketing services companies, possibly stifling entrepreneurship and small-business ownership in the advertising and media industry, as the report notes.
The ANA's study found various reasons for advertising agencies, research firms and production houses to set their payment terms based on the service they provide and the competitive landscape. Some agencies are more willing to extend payment terms when asked because they feel as if they don't have much negotiating power, according to the report. A shift from retainer fees to project work may contribute to agencies' willingness to accept longer payment terms. Marketers can push for extended terms for project work, especially among new agencies that are willing to accept the terms to establish a connection with an advertiser, the report said.
The number of research startups has jumped worldwide, many of which are willing to extend their payment terms to grow and win business, the ANA found. Competitive pressures led research firms to prolong their average length of payment by 36% to 60 days last year from about 46 days in 2013, the longest for any service provider in the advertising and marketing industry.
Production houses typically bill for services in advance because they have significant out-of-pocket expenses to prepare for commercial shoots. However, production companies have been buffeted by a trend toward in-housing of services at advertisers and their agencies. Many agencies have in-house production and editorial capabilities because clients demand more content for digital platforms, and they need it faster and cheaper. Among marketers that have in-housed their agency services, a significant portion (79%) have in-house video production capabilities, the ANA found in a 2018 report. Many in-house agencies also source production services directly, and extend the payment terms without having an outside agency acting as an intermediary.