Coca-Cola sees payment-term extensions to media agencies as troubling trend

Coca-Cola knows just the right thing to say to the right crowd. Muhtar Kent, chairman/CEO, and Joe Tripodi, chief marketing/commercial officer, told attendees at a seminar at the Cannes Lions International Festival of Creativity, many of whom hailed from ad agencies around the world, that they don’t want to get mixed up in the current trend of big marketers extending the time it takes to pay ad agencies.

Adage report said that Kent and Tripodi were interviewed by WPP CEO Martin Sorrell. The trio spoke to a packed audience while sitting in front of specially created Cannes Coke bottles in honour of the festival’s 60th anniversary, as well as their much-buzzed about ‘shareable’ can. Coca-Cola was named the 2013 Creative Marketer of the Year.

Sorrell, saying he felt like he was speaking on behalf of the ad industry, pointed out that increased influence from procurement and finance in marketing decisions was putting pressure on the system and the supply chain. As a result, the extension of payment terms to agencies is something that’s “really worrying the industry” and once-strong partnerships between agencies and clients are now “in danger of being eroded,” Sorrell explained. He added: “The thought that a client would choose an ad agency based on their payment terms is extraordinary.”

Tripodi agreed and said “we don’t want to see our agencies as vendors but as partners.” To that Sorrell said he wouldn’t even expect to be an equal partner, but at least a “junior partner” to a marketer, which Kent took issue with. Kent said one should never expect that there’s a junior or a senior level in a partnership, because it doesn’t lead to an intellectual or healthy dialogue. Overall, the theme Coca-Cola was trying to drive home was that it respects its agency partners and the value they bring to the company.

BusinessDay had earlier reported that clients delay in payments to Nigerian agencies stifles agencies and media business. But the agencies in Nigeria are careful of making their protests loud because they want to avoid incurring the wrath of the advertisers who dictate the media business pace. The advertisers are the big spenders in various platforms of media channels. Media agencies and the news media dance to their tunes.

During the thick of the recession, many advertisers cut marketing communication budgets and asked agencies to re-negotiate terms. At this period, the Nigerian media industry was obviously edgy.

Similar situation is playing up as advertisers delay payments to agencies, a situation that is becoming excruciating. Instead of 30 days or 60 days payment period as often agreed, clients are extending it to over 180 days and at times more. CEOs of agencies who commented on the issue simply said the situation was frustrating.

A managing director of an agency in Ikeja who prefers anonymity said sometimes agencies wait for six months to be paid for jobs executed with borrowed money.

“It is tough for agencies doing business here. The banks are also not helping matters. We borrow at over 22 percent per annum and that is when the banks agree to support you to do the job and wait for payment,” he said.

It is the view of another CEO of a PR firm that debts would always feature in business, especially operations that encourage bill payment after the job is done, but stated that when the payment is delayed beyond the agreed time, it is discouraging. The delay is acceptable if it is within 30 days, but these days it is far beyond that.

Assessing the situation, a top manager in an integrated marketing firm said under the delay payments, small agencies suffer more. On the possibility of the industry redressing it, he said it was an individual business contract.

Explaining the media debt, Advertisers Association of Nigeria (ADVAN) spokesperson and media manager, Friesland Foods, Femi Adeniba said then that anytime there’s a delay or non-payment, either the advertiser, agency or advert tracking firm was responsible.