Research Report: Payment Terms — Current Practices for Marketing Services
November 27, 2013
This report covers the findings from an ANA survey of client-side marketers on the topic of payment terms for marketing services. The survey was initiated due to member interest resulting from reports in the advertising/marketing trade press and mainstream business press regarding changes in payment terms being implemented by a handful of companies to some suppliers. The purpose of this survey was to determine if such changes were isolated examples or reflective of a broader trend.
Payment Terms Are Either Being Extended or Kept the Same
In the past year, 43 percent of respondents report extending payment terms and 17 percent report shortening terms for a list of marketing services covering agency fees, research, media, production, and talent payments. Meanwhile, 90 percent report keeping payment terms the same. (Numbers add up to greater than 100 percent because a given marketer could extend payment terms for one service, shorten for another, and stay the same for yet others.) Most marketing services have had payment terms extended, including agency fees, research, and various types of media. Note that, according to the survey, the historic payment terms for marketing services varies by specific service with the mean ranging between 37.9 and 45.9 days.
Reasons for Extending Payment Terms/Finance and CFO Main Drivers
The majority of respondents who have extended their payment terms have done so in order to derive better cash flow. Next in importance is upper management’s focus on accounts payable, which is tied directly to cash flow.
By far, the finance department and/or the CFO have the most impact in driving payment term changes. The procurement/purchasing area also plays a role.
Negative Consequences of Extended Payment Terms
Extended payment terms can have negative consequences, notably:
- Strained relationship with vendors
- Higher prices
- Strained management process
Changes in Terms Most Likely to Happen Across the Supplier Base
Among those companies that have evaluated implementing changes to payment terms, about 60 percent have done so to suppliers across the board, and 40 percent are evaluating changes to a segment of their supplier base.
As a Supplier/Vendor, Almost One-Third Saw Payment Terms Extended
Just under one-third of respondents claim that, as a supplier/vendor, they have seen their company’s payment terms extended.
More Than 40 Percent Likely to Change Payment Terms Within the Next Year
Forty-two percent of respondents say they are “very/somewhat” likely to change their payment terms for advertising/marketing services within the next year, including 29 percent who are “very likely.” Those respondents who are likely to change their payment terms cite three primary reasons for doing so:
- Improving cash flow
- CFO/internal management pressure
- External forces/keeping up with competitors
(Please visit our "Also See" section to the right for the PDF of this Research Report.)
“Research Report: Payment Terms — Current Practices for Marketing Services.” ANA, 2013.