Last week, I shared a post on LinkedIn titled “We are a media agency, not a bank,” which ignited a flood of attention and discussion. It struck a chord, highlighting a pain point many in our industry face – non-paying clients.
This response underscored the need for a deeper conversation about how media agencies, driven by the allure of securing big clients, often find themselves masked by an uncomfortable reality: the struggle with delayed payments and uncompensated work.
In the media agency landscape, the excitement of landing a major account often overshadows the dire consequences of non-paying clients.
As Seth Godin insightfully points out, “Cash flow is the lifeblood of business, and when it stops flowing, the business stops.” This challenge is not just about financials; it significantly affects operational efficiency and can cripple the creativity and vitality that fuel agency success.
Why is this issue so critical?
In our region, the common practice during the pitch process is that agencies are not compensated. They pour substantial resources and time—often under tight timelines—into crafting pitches, offering innovative ideas and concepts for free.
This practice disproportionately affects smaller agencies, which lack the bandwidth to allocate their best teams to these pitches without compensation. Even larger agencies feel the strain as they divert valuable resources that could be better invested in paid projects.
With existing clients who delay or default on payments, agencies face additional pressures. They often find themselves prioritizing payment collection over critical aspects of their business such as innovation, client relationship building, and even their own financial obligations to stakeholders and suppliers.
This relentless focus on chasing overdue invoices leads to burnout and diminished productivity across teams. As resources are diverted to manage financial instability, the quality and creativity of the work can suffer, eroding the agency’s reputation and its ability to attract future business.
Agencies are the problem
The root of this problem often lies not with the clients but within the agencies themselves.
Agencies have set a precedent that it’s acceptable to proceed without timely payments, a practice driven by the fear of losing client relationships.
Philip Kotler, a leading authority in marketing, highlights the dangers of this behaviour: ‘In a quest to secure and retain clients, agencies often compromise their financial health. This is a dangerous game. The moment you start giving away your services for free, you send a message that your work might not be worth paying for.”
What can agencies do to combat this trend?
It’s essential for agencies to mandate staggered payments that align with project milestones. Specifically, for in-house creative work, a requirement of a 50 per cent upfront payment before initiating any tasks is crucial for sustaining a healthy cash flow.
For media campaigns, where outlays often include prepayments to suppliers and media platforms, the policy can demand up to 100 per cent upfront payment.
This structure ensures that agencies can cover their operational costs upfront and protect themselves against financial risks associated with delayed client payments. This can be replaced by or supported by mandatory purchase orders (PO) for multinationals which legally signifies the client’s commitment to pay.
Agencies should not hesitate to enforce contracts through legal means and implement late fees for overdue payments, deterring the behaviour of delaying payments.
Remembering Peter Drucker’s words, “Business has only two functions — marketing and innovation. Both are driven by revenue,” it’s crucial for agencies to insist on the respect and compensation they deserve and reclaim their power in the industry.
By Rasha Hamzeh, Managing Director, The Inhouse Agency
