Mediatel Logo original-file's-desc Mediatel Logo Connected: Display Connected: Media Landscape Connected: Regional Connected: AV Connected: Surveys Connected: Direct LinkedIn LinkedIn logo icon Twitter Twitter logo icon Youtube Youtube logo icon Flickr Flickr logo icon Instagram Instagram logo icon Mail Mail icon Down arrow

I'll pay you (much) later

16 Sep 2014  |  Bob Wootton 
I'll pay you (much) later

Any agency that is asked to accept greatly delayed payment terms is effectively being asked to bankroll its client, writes ISBA's Bob Wootton. Is this a growing trend we should be worried about?

Having been away from the office for more than half the time since my last column (very nice break, thanks, since you ask) I'm still perhaps a little demob happy. Perhaps that explains my recklessly opining on a(nother) very controversial subject - extended payment terms.

I should say first of all that the views I express are entirely my own, but are obviously informed by my near 40-years' experience in industry.

Over the past couple of years, some large companies have reportedly sought to improve their cash flow and treasury income by imposing greatly extended payment terms on their suppliers. In the ad game, where huge sums of advertisers' money destined for the media channels pass through agencies, this has understandably led to some grave concerns.

Most of the money that goes to agencies goes on the media costs themselves, with the smaller part providing the fees from which they pay operating costs and make profits. Agencies which can satisfy the media of their creditworthiness and good financial standing get 'recognised' which means they can buy media on credit and not have to pay for it in advance.

Each of the media channels has its own payment terms, but very broadly the standard terms require payment for TV spots 15 days after the month in which they appeared, and for other media it's 30 days.

Now these are of course the standard terms. Today's consolidated mega media buyers are masters of trade and money and have legion terms of their own like AVBs, payment extension, or this year's newbie, 'services'. None of which are understood to be nearly as long as the extensions prompting this discussion.

It is of course up to any supplier to decide whether they are happy to have their own incomes deferred for the sake of continued trade, but they can't be nearly as flexible on the (much larger) payments due to their suppliers unless they can pass the pain down the value chain. So any agency that is asked to accept greatly delayed payment terms is effectively being asked to bankroll its client.

Now if I wanted to borrow money, I'd go to a bank. Hopelessly naïve, you might say, but I thought media agencies planned and bought media. So I would find it quite understandable if an agency either demurred to a client's request demand to pay late. Or if they were to agree, it would be on the understanding that they could charge the interest they would incur from their own bankers plus an admin fee for being and doing something they aren't and don't.

I realise these diktats often originate from a centralised finance function perhaps thousands of miles away - often in the land where the biggest money talks loudest and pushes hardest - and that different countries have different business customs and practices, but I can't help question both the underpinning morality and wisdom.

Consider the employee relationship and CSR dimensions. Are rank and file employees proud to work for companies that don't pay for what they consume for months? And how do customers feel? The notion of corporate bullying surfaces pretty quickly, especially when you consider the way social media amplify and accelerate conversations today.

Word has it that the imminent party conference season will see some renewed pushes against lengthy payment terms. Government has already announced new legislation to be introduced later this year that will require public sector organisations to pass 30 day payment terms down through their supply chains.

It also proposes to work with industry bodies and business stake holders to promote sector based best practice approaches and promises better enforcement of current penalties for late payment.

Business Secretary, Vince Cable, said: "For too long too many large companies have been getting away with not paying their suppliers on time to maximise their profits. It is small businesses that are suffering as a result and it needs to stop.

"The government has taken action to create a responsible payment culture but we need to go further. We will now make it compulsory for large companies to publish information about their payment practices so that those who are not playing fair can be held to account."

They say charity begins at home, so I thought I might contact my bank, energy, satellite TV and broadband suppliers and the retailers I use off and online and tell them that henceforth I'll be paying my bills six months hence. What kind of response do you think I'll get?

Whither broadcast major sporting events?

I don't follow much sport myself, but even for a Philistine like me the migration of the UEFA Champions League to BT Sport from ITV (and Sky) raises some interesting issues as we enter the annual trading round bun-fight.

It highlights obvious differences in business models - ITV unwilling to pay more for rights than it can earn from the advertising within its coverage and Sky from its subscribers vs. BT loss-leading on to drive more profitable and core broadband penetration.

But BT Sport's penetration is a fraction of ITV's universal footprint, so with the best will in the world the events it carries will achieve much smaller audiences.

This is bad in the short term for the advertisers who use these events to reach their audiences in large numbers. And bad for ITV - I've heard more than one major advertiser aver that they're "really only on ITV for the sport", so if the sport offer diminishes (and they have also lost the FA Cup rights to the BBC for four years too), so could their spend.

You can't blame the rights holders, in this case UEFA, for maximising revenue in the short term, but in the longer term I see it as bad news for them too as major events' franchises and value dwindle without mass coverage. Right now, it's a war of attrition between free-to-air and the pay platforms.

As for the football fans? Well they now have to contemplate multiple pay platforms to see what they used to get in return for the licence fee and/or having to tolerate some world-class ads.

Granted, the final is on the protected list of events which must be free to air, but I wonder how long it will be before the Commons Culture, Media & Sport Select Committee's energetic chairman John Whittingdale MP decides to seize on this?

This week in Scotland

This Thursday sees the Scots going to the ballot box to decide if they want to remain a part of the UK. I personally think voting 'Yes' would not be beneficial to their economy or our combined standing in the world, but polling suggests it will be very close.

Westminster has been rattled enough by the polls to give (too) many concessions if the Union remains in place, but the likely margin either way could be so slim that we should expect whoever is in opposition to claim that the winner hardly has any mandate to govern.

Closer to home, Nigel Walley of Decipher has written a characteristically excellent blog piece on the implications of a 'Yes' vote for the broadcasting industry both sides of the border which you can find here.

And given the national frenzy up there, I wonder what ratings the coverage on the night will achieve?


Bob Wootton is director of media & advertising at ISBA.
@bobwootton / @ISBAsays


To get all the latest MediaTel Newsline updates follow us on Twitter.

Leave a comment

Thank you for your comment - a copy has now been sent to the Mediatel Newsline team who will review it shortly. Please note that the editor may edit your comment before publication.

Robert Kramer, Vice President, Working Capital Solutions, PrimeRevenue, Inc. on 16 Sep 2014
“Why the morality play around payment terms? Most big companies extending payment terms also offer Supply Chain Finance (SCF) to their suppliers which allows them to choose early payment at an inexpensive interest rate.

Let's say Mondelez extends an agency from 60 days to 120 days. The agency can use SCF to get paid whenever they want, at a discount rate of say 1.25% APR. In most cases it’s cheaper for a supplier to fund a 120 day receivable at 1.25% than a 60 day receivable at their own cost of capital.

In the example above, only agencies with a cost of capital below about 2.50% would be worse off. Those companies are giant companies in their own right, and even then it costs them only a fraction of a percent of invoice value. The giant agency can choose to stop providing services, absorb the cost or pass it on to the client.

Companies have provided trade terms to their clients for centuries so suppliers are already "bankrolling" their clients. Now they're just haggling over the amount and many big companies are collaborating with suppliers by offering them SCF.

There's a big difference between negotiating long terms and paying later than terms which have been contractually agreed to. The former is the product of a commercial negotiation and can be planned for, the latter is simply violating a contractual agreement.

DATA SNAPSHOT

09 Dec 2019 

Data from Mediatel Connected
Find out more about the UK's most comprehensive aggregator of media data.

Arrange a demo
Advertisement

Newsline Bulletins

Receive weekly round-ups of the latest comment, opinion and media news, direct to your inbox.

More Info

Join thousands more readers by signing-up to receive our trusted news and opinion articles over email.

 

Please read our privacy policy.

As you're already registered with us, we've sent you an email which will allow you to manage your communication preferences.

Nice one. We've emailed you for verification. We'd like to get to know you and if you give us your details we promise not to share it with others or spam you.

Please complete the following fields:

 

Please read our privacy policy.

//-->