When clients offered hardball payment terms, this indie agency talked them out of it

How can smaller agencies respond when clients demand harsh payment terms? / Unsplash

As small businesses, indie agencies can be badly damaged by cash flow turbulence. So, if clients decide to play tough on the terms of payment on an account, it’s a serious matter.

The payment terms offered to agency suppliers by advertisers have come under particular scrutiny in recent months after it was revealed that Keurig Dr Pepper had demanded agencies bidding for its PR account agree to a 360-day payment regime – essentially asking them to work an entire year before getting paid.

“There is no excuse for paying so slowly and it’s very damaging to the growth potential of the smaller business,” says Pete Sayburn of intermediary platform Studiospace.

Large network agencies have enough staff to devote time and resources to renegotiating a deal and have a large enough client roster that a single customer laying late isn’t a major threat to its own cash flow. For indie agencies like Wisconsin’s Hanson Dodge, though, this issue is acute.

• ‘Small businesses need to resist’: agency leaders respond to Keurig Dr Pepper pay terms

“We’re a small, independent agency and as such, we can only do so much in terms of bearing costs for clients,” says Stacie Boney, the agency’s president since 2018. The Milwaukee agency works with both clients such as Unilever brand Blueair and the Utah tourist board, bringing in a turnover of over $30m in 2022. Despite turnover rising in recent years, maintaining consistent cash flow is still important to keep the business ticking over.

In Boney’s time at Hanson Dodge, she says she has found herself facing down a client offering a poor deal on two separate occasions.

Renegotiating payment terms

“Our largest client was going to spend more on media, so more money was going to be managed. But they wanted to pay after the media ran. They had this policy about waiting 60 days in their billing cycle… but that would mean that we, a small agency, would be acting as their bank.

“We held our ground,” she recalls. In the end, Boney and her colleagues worked with their brand-side counterparts to find a solution that meant it could get paid on time, and meet the client procurement team’s ironclad regime – invoicing significantly earlier than normal.

“It was literally game planning together with a client about how to work within their system and follow their rules… to get the finance team to be creative,” she says. “In general, people don’t want to screw partners but sometimes their policies do.”

Sayburn argues this strategy is available to any agency in the same spot. “It’s really good for agencies to recognize that as well as their immediate client in marketing, there are other teams in procurement and finance, and they should try and build a relationship with all three,” he says.

Boney previously spent over 30 years at BBDO, eventually rising to become a client service director and leading its Wrigley and SC Johnson accounts. During that time, she came up against several less-than-generous propositions from clients.

On one occasion, a “large global client” attempted to cut down its spending by refusing to pay a fair price, just six months after the agency won its business. “We had some momentum there but the money just wasn’t going to work: BBDO was not going to work at breakeven on this large CPG client.”

Boney went above the heads of the client’s procurement unit and took a four-hour flight, accompanied by her agency chief financial officer, to see the client’s CEO. “We went in person because when you need to resolve tough negotiations, in person can really make a difference.

“We went into this big power office, very intimidating. And he told us straight up: ‘You know when a convenience store charges a lower price for milk to get you in the store? It’s called a loss leader. I want my account to be that for BBDO.’”

Though the suggestion itself was “inane” – Boney recalls laughing at the idea to the executive’s face – it at least brought some transparency. She felt able to set out the agency’s concerns in plainer language and they were able to move on.

“That opened up the conversation,” she says, and the client eventually agreed to put in place a performance-based bonus structure that allows BBDO to get paid over and above its original fee. “We put skin in the game. We got it all done in that meeting and worked out a scenario that was acceptable to the agency, and acceptable to him. Nobody won, everybody gave something. But in the end, it was a partnership.”

Power to walk away

It’s not always possible, however, to recover a working relationship with a miserly customer. Boney says it’s important that agencies know they can step away from a bad offer.

After a laborious and tightly monitored review, she recalls Hanson Dodge was selected as the winner on a business “we really wanted to win.” But during a Zoom call held to hammer out the final details on the account, the brand’s chief executive demanded a major price cut. “They said, we want you to charge us what the agency we’re firing is charging us and it’s 20% lower than your winning bid.”

“I wasn’t able to control my face,” Boney says. She and her colleagues decided to walk away from the account on the spot. “We can’t start a relationship with people and have them pull a fast one,” she explains.

Sayburn agrees. He says: “There is a traditional procurement and finance view that getting the most out of your suppliers is a good thing… but getting a call from a director asking for 10% off, that’s quite old-fashioned.

“If any agency’s been shortlisted or selected for a piece of work, they’re actually in a really strong position at that point.”