Are late payments smart accountancy or bad ethics?


Clients are “unfair and greedy” in their approach to paying agencies, according to the MAA (Marketing Agencies Association).

I think few agencies would disagree with that.

However, few CFOs’ seem to get it.

When it comes to trust, estate agents, journalists, used car salesmen and marketers were pretty much at the bottom. But now it’s the world of finance – bankers, City dealers, shareholders, pay day loan companies and…. CFOs.

It’s not some kind of plot by the media but a simple fact – people judge you by the way you behave – and the financial industry over the last 10 years has shown nothing but contempt for moral principles, ethics and even the law.

It has been criticised for its culture of greed and lack of moral compass, so it’s no surprise that one of the biggest issues facing the marketing industry is not actually the usually complaints – lack of good briefs, clients who are less brave, short deadlines, declining quality standards – but late payments.

It’s hard enough as it is to find clients who aren’t squeezing agencies to do more for less, but what adds insult to injury is the growing length of payment terms.

The MAA view

The MAA, a trade body who are not one to shy away from topical issues, has recently started to raise the question of finding a solution to long payment terms and the many dirty tricks CFOs practice without guilt.

They recently held a seminar with the Guardian to a packed house, proving how topical an issue this is.

I think we can all list many big brands who abuse agencies this way, and it really is an abuse. There are also those in the economic sector and government who fear that big brands are damaging the UK economy with these unethical long payment terms, after all 95% of companies in the UK area SMEs and are responsible for 48% of UK private sector employment, so are vital to economic growth.

Brands like Premier Foods are just one of many that have been publicly criticised for unethical payment terms, they even featured in a BBC Newsnight for practicing “pay and stay”: asking suppliers for money up front just to be considered for work, which really is as unethical as you can get.

Premier Foods launched its “Invest for Growth” program in July 2013. To improve its cash flow and pay down debt, it asked suppliers to “invest,” or lend, money upfront to them to continue doing business with them.

The recent recession gave big brands an excuse to extend from the common practice of 30 days to 60 and 90 and some to 130 and 150 days.


Mondelez International (Cadbury, Kraft and Philadelphia) has payment terms of 120 days. Procter & Gamble has payment terms of 45 days to 75 days. AB InBev have 120. Brewer Molson Coors (Grolsch and Carling), entered The Forum of Private Business ‘hall of shame’ over its supplier terms in 2010.

To ad insult to injury, several of the above brands have offered their agencies loans (with interest) to cover the gap until they are paid!

You really have to ask, “Just how unethical are some CFOs?”

With 72% of agency work being now project based and income fees declined by almost 20%, agencies are under sever financial pressure.

“The government can’t call for enterprise and innovation whilst allowing corporations to behave like this,” said MMA MD Scott Knox said. “What more do corporates need?”


The IPA view

Alex Hunter, the finance director of the IPA said, “It is surely nonsensical that agencies – many of whom are SMEs – should act as banker to these major corporations, merely so that these corporate giants can demonstrate strong balance sheets to their analysts each quarter. With interest rates at an all-time low there is no real commercial value in unilaterally extending payment terms. Those at the receiving end of this pressure are precisely those hired to add value to these major companies through their commercial creativity.”

Even those brands, like one well know newspaper group, who claim 30 days payment terms are often less than honest. 30 days may be from the end of the month in which the invoice is submitted – which can’t be done until the PO has been issued, which seems to take forever. So even a 30 day rule allows CFOs to cheat the system.

Thomas Cook recently asked for a £1 million “signing-on fee” for the agency that was awarded its media account. “Realistically, clients need to be embarrassed into changing their ways,” said Paul Bainsfair, the director-general at the IPA.

The FSB view

The FSB (Federation of Small Businesses), which represents over 200,000 SMEs in the UK, are deeply concerned about the damaging effect big brands are having upon suppliers. Just look at what’s been happening to milk farmers!

Over 50% of their members had experienced late payment.

The FSB have been calling for an independent inquiry into the UK’s poor payment culture and an independent inquiry to tackle late payment and supply chain bullying.

A survey they conducted found that late payments have resulted in 30% of its members having less ability to grow, 32% saying it made them pay their own suppliers late and 15% saying it resulted in difficulties paying staff.

Xerox, named and shamed by the FSB commented on a case of late payment, “Company policy is not to pay any invoices in the last quarter of the year.” 

Graham Buck, regional chairman for the FSB said,  “Late payment and the UK’s poor payment culture are difficult issues to address. We acknowledge Government’s attempts to find a solution, including the Small Business Bill, but the situation is continuing to deteriorate. To get real change in how large companies do business, more decisive action must be taken.”

He went on to add, “The abuse of small firms in their dealings with bigger businesses cannot be allowed to continue. We have seen the UK’s payment culture significantly deteriorate in the past five years. The gradual creep of payment terms from 30 days to well over 100 days in some cases, coupled with debilitating contract terms, can have a disastrous 
effect on a small firm’s ability to operate.”

Late payment has opened up the door for factoring agencies and other businesses. Recently I came across this on my LinkedIn – “We believe businesses have the right to Get Paid On Time. That’s why we’ve built Satago: a clever automated accounts receivable platform integrating with most cloud and desktop accounting software. It takes the hassle out of chasing debtors and boost your cash flow with one click so that businesses can spend more time chasing new customers and doing the work they love.”


The agencies view


Omnicom boss John Wren has recently turned away business from clients seeking extended payment terms. “We’ve turned down and not accepted clients that we could have won because we weren’t prepared to accept the terms they were offering.”


He further added, “We’re not a bank. I think if you speak to my competitors, they’ll all three agree with that concept… that’s not what we’re here for. And anybody who wants to treat us like a bank can go to a bank.”


WPP’s Martin Sorrell has also gone on record to say, “We are not a bank”.


The Government’s view


It estimates small firms are owed £26bn in late payments – and chasing debts costs them millions of pounds more,” according to Business Minister Anna Soubry.

As part of the new Enterprise Bill, the government plan to create a small business commissioner to tackle the power “imbalance” between small and large UK businesses and deal with outstanding payments and supply-chain bullying.

The new commissioner will have the power to refer large debtors to the Competition and Markets Authority and would:

  • – be a point of first contact for small businesses and provide advice and support on how to avoid disputes and how to resolve them
  • – offer access to mediation services to sort out issues quickly and affordably, “at a fraction of the cost of going to court”
  • investigate complaints over unfair business practices and regularly report its findings.

The government’s own policy on payment terms is clear and Vince Cable has stated publicly that too many large companies have been getting away with not paying their suppliers on time to maximise their profits.

“If you haven’t already agreed when the money will be paid, the law says the payment is late after 30 days for public authorities and business transactions after either:

– the customer gets the invoice.

– you deliver the goods or provide the service (if this is later).

You can agree a longer period for payments from one business to another – but if it’s longer than 60 days it must be fair to both businesses.”

Well the way big brands are acting is anything but fair.

“The interest you can charge if another business is late paying for goods or a service is ‘statutory interest’ – this is 8% plus the Bank of England base rate for business to business transactions.”


But do agencies fair any better when it comes to paying on time? Sadly not, some are just as bad, often blaming their clients for paying late. One well known large agency had a reputation for making suppliers wait 9 months to get paid.

Is there a solution?

Moving forward, what is needed is legislation that is enforced and puts the interest of the economy over those of the shareholders of a few big corporations. We obviously can’t trust CFOs to act fair; their moral compasses have drifted too far away from what is ethical.

Small agencies are sadly in no position to demand better terms, as they don’t command the respect they use to, and they can get little support from marketing as few Marketing Directors sit on the board. But the big giants like WPP and Omnicom could make a stand.

As an industry with over 20,000 creative agencies out there, it is impossible to expect any unified action. And if you do say ‘no’, someone else will say ‘yes’.

The only other way forward seems to name and shame.

Or to unit together and use our skills to market the idea to board directors of big corporations why they should pay within a reasonable time.

One of my creative teams recently scripted a video that asked, ‘What would happen if CFO’s behaved in the real world as they do in the corporate world?”

It starts with a man walking out of Tesco with his shopping and saying, “please send the bill to my office and we’ll pay in about 90 days,” as the checkout girl looks dumb founded. He then drives off from a petrol station having not paid for his petrol… you get the picture.

When he finally gets stopped by the police to explain why he has left numerous places without paying he simply says, “ It’s OK officer, our policy is never to pay in less than 90 days.”

As the officer puts the handcuffs on him he comments, “I really think this is unfair.”

The video ends with the line.

Should financial directors who bully small businesses and pay later than 30 days get 30 days in prison?

76% of small businesses surveyed believe they should.