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Enhanced Payment Terms - Heralding the Age of Commoditization of Advertising?

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by Karthikeyan Mahalingam
26 September 2013

As the role of procurement department increase day by day, advertising agencies are facing difficulties in maintaining cash liquidity for their short term debt management. The problem is compounded by the trend among marketers to evaluate the option of increasing the payment term to 90 or 120 days. Payment term extension is an emerging trend mostly among high spending marketers in FBT, CPG industries segments. This article explains the positive and negative effects of payment term extension from the perspective of both the marketer and the agency. Certain segments of advertising such as advertising production activities are labor intensive and advertising agencies have to pay nearly 50% of production budget prior to the shoot. These industries are strictly governed by labour laws, so payment term extension will drastically affect small, independent agencies mere existence. This article also evaluates the possibility of agency landscape shakeout if the payment term is increased beyond the current practice.

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