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If you pay late, don't claim to be socially responsible

If you pay late, don't claim to be socially responsible
Some of our biggest advertisers are doing a bad thing, writes IPA Director General Paul Bainsfair.

As has been widely reported, Mondelez International (the former Kraft Snack Group), Procter & Gamble, Johnson & Johnson and Anheuser Busch are all at it. They and others are extending their payment terms, in some cases up to six months after the work has been completed.

It's not as if by doing so they could take advantage of high interest rates. As we all know interest rates remain at an all time low. Holding on to cash to improve the look of the liquidity of a company’s balance sheet is a decision that's often taken by the company's treasury to flatter their performance. Whilst it might give a slightly better impression of a company's financial health to some analysts, the direct and human consequences of what really amounts to financial cosmetics are cruel and unfair.

Advertising is a critical sector of this country's creative industries. It employs directly and indirectly over 550,000 people. Many work for small companies or they are often sole traders.

When big clients withhold payment from their agencies, they are putting in place a practice from which only bad things can happen. In all agencies, cash flow is critical. If their clients don’t pay on time then the agencies often have no alternative but to hold off paying their suppliers. These are often the highly talented people who in our case help make UK advertising amongst the best in the world. Yet when the advertisers delay payment; well, it’s no different to you and me being told that instead of being paid at the end of the month we will have to wait for months before we do get paid. When that happens the human cost can be devastating.

How ironic it is then, that all of the companies listed above pride themselves on their corporate social responsibility. Mondelez International even go so far as to say that CSR is at the heart of their success.

Whilst it's true that there is a late payment law in the UK, allowing suppliers to claim interest from late paying clients, it's not much use when a big client simply announces that they are changing their terms. The big advertisers know that hardly any agencies will risk losing their business by standing up to them. It's bullying, pure and simple. It’s an abuse of power with awful consequences.

Many companies have learnt to their cost that consumers judge them harshly when they do bad things. Social media enables customers to quickly voice their disappointment and to take their business elsewhere rather than continue to reward bad behaviour.

It’s time to rattle the cage of late paying big corporates and spread the word about their unethical behaviour.

Let’s shame them all into behaving with some decency.

Last updated 18/07/2013

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