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Building a Foundation for Trust in Client/ Agency Relationships

27 Feb

dreamstime_s_38659968Perhaps I was fortunate. Perhaps it was a sign of the times. When I began my career at J. Walter Thompson, we took great pride as an organization in the number of client relationships that we had, which were measured in decades. Clients such as Ford Motor Company, Unilever, Kellogg’s, Kimberly-Clark, Kraft Foods, and others were celebrated, revered, and nurtured.

Not unlike today, there were challenges to be faced and pressures to be dealt with, whether market-driven or internal.  So, what allowed those relationships to flourish through good times and bad?

The answer was simple. Trust and a mutual commitment to the partnership combined with alignment on business objectives.

Today it is believed that the average length of client-agency relationships is around 3½ years. Is this reduction in longevity correlated with the fact that there has been a slow, but steady erosion in the level of trust between advertisers and their agencies? Consider that a couple of years back, the Association of National Advertisers (ANA) conducted a survey and found that only 29% of its member marketers ranked the “current level of trust between client-side marketers and ad agencies as high.”

A waning level of trust can inhibit communication between stakeholders leading to difficulties that throttle the productivity of the partnership. Conversely, as Stephen Covey once said:

When the trust account is high, communication is easy, instant, and effective.”

Thus, if you believe that stable, long-term strategic partnerships are more conducive to achieving an organization’s business and marketing objectives, then the obvious question is “How can we establish client-agency relationships that endure the test of time?” The answer seems obvious… addressing the issue of trust.

In our experience, there are three fundamental steps that can be taken to build and maintain trust between advertisers and their agency partners.

  1. Contractual agreement predicated on a “Principal-Agent” model – Simply put, in this type of relationship the agency is charged with acting on the client’s behalf and in their best interest. This legally binds the agency to always put the client’s interests first and eliminates their ability to benefit from the relationship at the client’s expense. One of the beneficial outcomes of this type of model is that the client can take solace in knowing that the advice and recommendations of the “Agent” is more likely to be unbiased. In the event that an agency recommends the consideration of principal-based or inventory media buys or the use of or procurement of services/products from a related party of the agency, then the agreement language should require full-disclosure and prior written client approval.
  2. Periodic agency contract compliance and financial management reviews – Having a sound contract in place is a positive step in the right direction. However, if an agency’s compliance with contract terms and conditions is uncertain then achieving the desired level of trust may be elusive. Given industry concerns regarding transparency, all stakeholders will benefit from an independent evaluation of compliance and performance. Further, knowing that there will be an additional layer of oversight inspires stakeholders on both sides of the partnership to uphold the client organization’s desired levels of governance and transparency established within the agreement. This is not a sign of mistrust, but a signal of an advertiser’s commitment to the principle of “assurance.” As the saying goes: “In God we trust, all others we audit.”
  3. Establishing a fair and compelling agency remuneration program – Properly compensating agency partners is fundamental to securing the requisite level of support and bolstering an agency’s commitment to its fiduciary role. Additionally, a well-paid agency is less likely to engage in practices such as the pursuit of vendor kickbacks, the application of non-transparent mark-ups, profiting from the use of client funds, or the unauthorized use of sub-contractors and related parties. Contractual language capping agency revenue to that which is authorized within the agreement and subsequent statements of work will also protect the advertiser from these tactics and help curtail agency temptation to inappropriately supplement its income at the expense of its fiduciary obligations to its clients.

We have seen firsthand the benefits of this proven formula in promoting transparency and bolstering an organization’s trust in its agency partners. Thus, marketers and their agency counterparts should consider embracing this approach to strengthen and reinforce long-term agency-client relationships by ensuring a solid footing.

How is Your Media Agency Making Money in 2022?

17 Feb

agency holding company profitsWritten by Oli Orchard, Partner – Fuel Media & Marketinga specialist communications consulting company focused on advising clients in media communications. 

With Publicis and OMG in the news this week (February 2022) with significant revenue increases year-over-year, now would seem a pertinent time to look ‘under the hood’ of the different revenue streams agencies have available to them.

Using the traditional commission method, still prevalent today, it is often thought that a media agency has a disincentive to save clients’ money or indeed manage lower budgets.

Because most media agencies are compensated on a percentage of media spend, if they negotiate the prices down, and potentially reduce total spend, they will earn less money.

In practice, the traditional ATL percentages involved stop this being much of a disincentive.

  • A buy of $10,000 at 3% commission provides the agency with just $300 income.
  • If the agency negotiates 25% discount on the media, the agency will only lose $75.

Obviously, the agencies are doing this at scale, and those $75 discounts start to add up, as a result the agencies have long looked elsewhere to bolster their incomes. So, in 2022, what other revenue streams are open to the agencies?

Agency income takes many forms, and too many to go through here, so we’ll stick to the top ten.

  1. Fees & Commissions – Whether Time and Materials based, or a percentage commission on media spend these should need no introduction to advertisers. At Fuel we hold data on innumerable best practice contracts, and always work with clients and agencies to come to the most appropriate basic remuneration package
  2. Bonus/Malus schemes – These programmes have become synonymous with best-in-class-advertisers, looking to reward their agency beyond the basic remuneration for exemplary work. The Malus scheme has gained more traction in recent years, as agencies look to differentiate themselves from the competition by having some ‘skin-in-the-game’, often putting part of their profit margin at risk
  3. Incremental services outside of Scope of Work – These are often the result of out-of-date contracts, and can commonly comprise things an advertiser might expect to be included in the contract, such as Quarterly Business Reviews, competitive monitoring, dashboards, post-campaign reporting and even out-of-home planning
  4. Deposit Interest on bank accounts – Historically agencies have taken advantage of bank interest rates and been fast to invoice and slow to pay. With rates on the increase again, albeit slowly, advertisers will need to become increasingly aware of this. Agencies deal in vast sums of money, and this revenue stream should not be overlooked
  5. Kickbacks from vendors – AVBs, rebates, Specialist Agency Commissions, the list goes on; kickbacks have many names, and they don’t always take the form of cash. Free Space that can be given to advertisers to bring the CPM down to hit bonus targets, or alternatively sold on to other clients is another common form these shapeshifting kickbacks can take. It is also imperative that the contract encompasses as much of the agency holding group as possible, often kickbacks can be routed through other parts of the group
  6. Unbilled media – It is not uncommon for a media vendor to forget, unintentionally or intentionally, to bill an agency for a media placement that the agency has already billed the client for. The agency should be reporting and returning unbilled media on a regular basis, though clients should be aware of the fiscal statute of limitations, meaning the vendor could invoice the agency within a specified period of time (it is currently 6 years in the UK) and demand payment, which will then be passed on to the client
  7. Agencies acting as the principal (rather than agent) – This is commonly known as inventory media, the agency takes a position on, or buys, a quantity of media directly from a vendor, with no specific client lined up for it. There will be NDAs in place with the vendor preventing the agency from disclosing the actual price paid to clients or auditors. This allows them to mark-up prices, generally by a very significant percentage when selling this space on to clients. The flip side of this is that an advertiser can get a great rate on something they may have bought anyway, though they may also be pushed into a buy that is sub-optimal for their strategy just to meet the agency’s internal need to offload inventory
  8. Subcontracting to related 3rd Parties – Agency holding groups are vast and have many complimentary disciplines. It is not uncommon for a specific task to be subcontracted (attracting an additional fee) within the holding group
  9. OOH commissions – It is worth listing these separately to those above because OOH often has a unique commission structure where both the advertiser and vendor routinely pay the poster buying specialist for placing the media. This is frequently dealt with in agency contracts as an additional ‘Disclosed Commission’ tucked away in a schedule at the back of the document as Specialist Agency Commission
  10. DSP usage – Programmatic has long been the poster child of non-disclosed fee structures further down the digital value chain but there is one significant agency revenue stream that crops up near the top of the chain in non-disclosed White Label mark-ups. The DSPs allow their clients (in this case the agency, not the advertiser) to add an additional CPM into the net media cost, meaning that it doesn’t show up in any of the auditable invoicing trails, and is passed back to the agency
  11. As you can see from above, agencies constantly evolve income streams, seeking out new ways to profit, and let’s not get the intent of this piece wrong, agencies should be able to profit from their great work for clients. However, many advertiser clients are becoming cash cows, based on the agencies’ opaque trading practices.

At Fuel, we work with the agency and advertiser to produce the optimum contract for the situation, one where transparency around agency income is openly discussed, and the advertiser can make an informed, supported decision about the relationships they forge with their agency partners.

Here’s our checklist for advertisers:

  • Check that your contract is up to date – does it cover the entire scope of business transacted between you and your agency? The very best contracts are reviewed and revised annually to take landscape shifts and revised media strategies into account
  • Make sure that your agency is obliged to ‘call out’ and seek approval for inventory media and use of subsidiaries/sister companies
  • Have a frank discussion with your agency about the non-disclosed White Label mark-up that the DSPs allow them to add into the platform costs, and consider requesting to be part of the conversation around DSP selection
  • Undertake regular audits of performance vs. pitch or year-over-year guarantees, and tie the buying results to a bonus/malus scheme in tandem with service scores and achievement of business objective KPIs 

To find out more on how Fuel can help, contact Oli on +44(0) 7534 129 097 or email oli@fuelmediamarketing.com.

The Best Way to Involve Agency Related Entities on Client Business

28 Jan

dreamstime_s_137202250Four of the world’s largest agency holding companies account for over $47 billion of advertising spending. Each has dozens of agency brands, specialty service firms and media procurement, marketplace and or platform providers.

Part of the success of the agency holding companies in fueling organic revenue growth in recent years has been their ability to involve these specialists on their branded agencies client businesses.

The use of affiliates is certainly advantageous for the holding companies and can be beneficial for clients seeking to have a coordinated, comprehensive marketing communications program administered by a lead agency.

While there may be efficiencies that accrue to advertisers, unchecked there is an equal likelihood that they may be paying a premium for the use of agency related parties. Why? Because affiliate goods and services are often proffered without client knowledge or consent and may not have been competitively bid to determine value relative to marketplace alternatives. Further, affiliate remuneration is often blind to advertisers and can take the form of non-transparent, unauthorized mark-ups applied in addition to the fees and commissions paid to the lead agency.

Many client/ agency agreements have specific guidelines for agencies seeking to involve related parties (whether the guidelines are followed), others don’t even address this important area.

The best approach for agencies seeking to engage affiliate companies is “full disclosure.” This means notifying the advertiser in writing of the opportunity to deploy theses resources on their business, specifying the nature, scope and cost of the work or product to be accessed and being clear on how the affiliate(s) is to be compensated.

Unfortunately, in actual practice, advertisers often have no visibility into the involvement of agency related parties on their business. This is not an approach that we would advocate because it can fly in the face of an agency’s fiduciary responsibility to its clients. Further, when advertisers learn of some of these arrangements it can lead to an erosion of trust and or confidence in the agency’s intentions and their responsibility to provide unbiased advice that is in the best interest of its clients. As it has been said: “a single lie discovered is enough to create doubt in every truth expressed” and no agency should want to raise the specter of doubt with any client.

Sound contract language regarding the agency “supplier group,” the process for involving related parties, their obligations under the agreement and the attendant level of compensation can go a long way in mitigating these concerns. This creates the opportunity for a proverbial “win-win” situation where both advertiser and agency can truly benefit from this practice.

Reduce Your Content Management Risks & Costs

1 Oct

Content Management Systems

Content curation and production continues to grow in importance as marketers expand their message distribution to multiple devices across a myriad of channels including mobile, web, social media, shopper marketing, public relations, etc. The result is an ever-growing quantity of brand specific content that needs to be managed and shared.

For most marketers this content is being accumulated, produced, and stored by multiple of their marketing service providers. This can create logistical challenges when it comes to managing and accessing these critical assets, invariably creating risks related to compliance, brand consistency and usage rights violations while driving up operational costs.

The solution can be straightforward… a centralized enterprise-wide content management system (CMS) that improves a marketer’s ability to manage and protect this disparate set of images, videos, logos, and text files across its marketing agency network. Further, creating a content management “center of excellence” makes it easier to search, access, transform and distribute these assets in their proper format for use by each marketing partner.

The centralization of this function, whether in-house, with a designated “lead agency” or with a specialized CMS provider can boost productivity and improve both time and cost efficiencies. How? Eliminating the redundancies in labor and costs related to accessing content curation, creation, formatting and cataloging from multiple agency providers. This allows brand management personnel, and their advertising agency partners to focus on their specialty… “origination” rather than “adaption” projects.

How Should Marketers View Digital Media in a Post-Cookie World?

30 Sep

Third-Party Cookies

As both government regulatory bodies and the advertising industry have become serious about data privacy, browsers such as Chrome, Safari, Firefox, and Explorer have announced safety measures that include restricting first-party cookies and blocking third-party cookies by default.

These moves will clearly have an impact on a range of outcomes, including user experience, data access, ad targeting and attribution. This will limit marketers ability to personalize content, target their advertising to individual users or assess which impressions had an impact on a consumer’s actions.

That being the case, how should marketers view the value of programmatic advertising in a post-cookie world?

For some, their focus has turned to first-party data for which consumers have given their consent. Yet, gathering this data and harnessing its value will take time. Further, this approach still requires an ad ID solution for which there is currently no standard or consensus among publishers, AdTech companies or device makers. That said, there is hope on the horizon as organizations such as the Advertising ID Consortium have emerged and are offering people-based identifiers that are compliant with “self-regulatory codes” and applicable privacy and security laws.

While the industry awaits a robust, unified ad ID solution, the loss of behavioral or deterministic targeting tools will clearly weigh on the efficacy of programmatic digital media.

According to Statista, global digital ad spend will reach $389 billion in 2021, with nearly 85% of that being place programmatically. In light of the challenges posed by the restrictions on third-party cookies, the question is, “Should marketers continue to allocate such a high percentage of their overall media spend in this area?”

In the words of 19th century author, Henry David Thoreau, “It’s not what you look at that matters, it’s what you see.”

How Will Post-Pandemic Employee Compensation Impact Your Agency Fees?

26 Aug

Virtual OfficeWith COVID-19 vaccination rates increasing, organizations across the globe are evaluating whether and or when their employees will be required to return to the office. As part of the consideration process, many are deliberating on whether to allow all or select employees to continue to work remotely.

The question being assessed by employers considering extending remote work privileges is, “How will this decision impact employee compensation?”

Many organizations are weighing different pay scales for remote workers. As an example, Google is planning to adjust employee compensation based upon the local market wages where an employee works from. Which certainly seems like a reasonable trade-off.

By way of example, in a recent article by Reuters, which had seen Google’s “salary calculator,” an employee living in Stamford, CT, which is an hour from New York, would earn 15% less if they opted to work from home, rather than commuting into New York City. Of note, Google is but one Silicon Valley company that has implemented location specific compensation models for employees living and working in less expensive areas.

As advertising agencies evaluate their post-pandemic approach to the use of flexible staffing and or remote workers, it stands to reason that while some will opt for location agnostic pay models, others may implement location specific remuneration programs for remote workers. In the case of the latter, the obvious question is, “How will cost-of-employment adjustments impact the fees charged to advertisers?”

Will those on commission-based fees adjust rates downward? Will those employing direct-labor-based compensation programs reduce bill rates?

It is certainly reasonable to assume that if an agency reduces its salary and overhead expenses, that the fees charged to advertisers should be reduced accordingly. That said, it is likely that any adjustment to agency bill rates will need to be the result of collaborative discussions, initiated by the advertiser, between themselves and their respective agency partners.

At a minimum, location-based employee compensation adds an interesting dimension to the ongoing quest for a fair and balanced agency remuneration system.

Advertisers: What is Your Line of Sight into Your Ad Agency’s Use of Affiliates?

23 Aug

Line of SightDo your client-agency agreements require your agency partners to disclose their use of related parties? To secure your permission prior to engaging affiliates? To document how those affiliates are compensated?

If so, then you are in a better position than many. At a minimum, testing for agency compliance to such contractual requirements is an option that you can pursue. If not, the level of work being channeled to related parties by your agency may surprise you.

In our contract compliance and financial management audit practice, it is not uncommon to see 5 to 7 different related parties engaged by an advertiser’s agency. Examples of services provided by affiliates include items such as barter, programmatic buying, direct response TV, event marketing, principal-based buying and ad serving. Yet, oftentimes these affiliates and the manner in which they are compensated are not known to the advertiser.

Why should an advertiser care? For one, if work is assigned to an agency affiliate without undergoing a competitive bid process, what assurance can the advertiser have they are not being charged above-market rates? Secondly, the added profitability by recommending certain affiliates, such as those engaging in the procurement and resale of media inventory through principal-based buys or barter, could adversely influence an agency’s recommendations to the advertiser. And to compound matters, if said affiliates are also applying non-disclosed mark-ups to the media inventory procured or services provided, how can an advertiser fairly assess whether the total fees the agency is generating from its business are commensurate to the services being delivered?

Thus, it is important to revisit contract language to ensure that the following controls are in place:

  • Principal-Agent language that requires the agency’s fiduciary responsibility is to the advertiser and that all decisions and actions are undertaken in a manner that maximizes benefits to the advertiser.
  • Require the agency to disclose any and all related parties that it intends to deploy on the advertiser’s behalf and to secure the client’s prior written approval. Requiring quarterly updates to this list would provide an added layer of protection.
  • For instances where principal-based buys, barter or other non-disclosed transactions are being considered, require a double opt-in process:
    • The first step would be a formal letter of notification from the agency to be signed by the advertiser granting permission.
    • Secondly, any purchase authorization form presented by the agency to the client for approval should reiterate the agency’s intent in this area.

With these agreement guardrails in place, advertisers can further protect their interests by periodically auditing the agency to validate compliance and verify the accuracy of charges made by and or for related party activities.

Ultimately, this approach will allow an advertiser to leverage the full breadth of its agency partner’s resource offerings in a very transparent manner, providing comfort that its agency’s practices are aligned with its expectations.

Risks Related to Ad Agency Staff Reductions

23 Feb

LayoffsAdvertisers cut budgets; ad agencies reduce headcount. This is a causal relationship and always has been.

No one can fault an ad agency for making prudent fiscal decisions when revenues decrease.

That said, advertisers need to take precautions in this situation to mitigate their risks, particularly when there are significant downsizings as there were in 2020.

It was recently announced that Omnicom and Interpublic had eliminated “10,000 roles” between the two organizations in 2020, citing the pandemic as the primary reason. This represented an 8.4% reduction in staff for Omnicom and 7.6% for Interpublic. Significant by any measure… and they will not be alone, the other holding companies simply haven’t yet disclosed annual headcount data.

Like with most professional fee-for-service providers, involuntary staff reductions tend to have a disproportionate impact on longer-term, more highly compensated individuals and personnel working in shared services functions such as finance, human resources, legal, procurement, traffic, etc.

Advertisers that have reduced their budgets obviously need to collaborate with their agency partners on revised scopes of work and remuneration programs that reflect new spend levels. Clients that have maintained or increased spending will need to implement safeguards to ensure that their accounts are adequately staffed and supported.

This includes making sure that the mix of agency personnel working on their business is reflective of the need for strategic insights, breakthrough creative and executional excellence in all facets of the business.

Items such as tightening up creative and media briefing and approval processes, specifying media planning procedures and desired outputs, identifying media management guidelines for in-flight stewardship and post-campaign performance reporting and being overt about financial management expectations and reporting (i.e. project tracking, job closure and reconciliation, third-party vendor payments, etc.) are necessary steps for advertisers to take.

In our experience, as long as both client and agency are aligned, working through these situations to mitigate the risks associated with involuntary staff reductions can be effectively addressed.

As Josh Billings, the 19th century writer and humorist advised: “Caution, though very often wasted is a good risk to take.”

Agency Audits: An Advertiser “Right” Not Yet a Standard Practice

26 Jan

dreamstime_xs_7828625For most organizations, the “Right-to-Audit” is a staple in their advertising agency agreements. Worded properly, this important contract language provides the company an opportunity to periodically check ad agency compliance with contract terms, review financial support that should agree to agency billings and to otherwise evaluate various performance metrics.

Yet despite the inclusion of this vital risk management clause and the rights that it confers, far too few organizations actually follow through to perform the testing which would otherwise provide stakeholders with comfort that agency billings are accurate and true.

So, why don’t advertisers audit their agency partners?

One might logically deduce that all clients would periodically review agency compliance, financial management and performance given:

  • The materiality of spend levels.
  • Limited insight to whether agencies are accurately reconciling estimated invoices to actual costs.
  • The complex, multi-layered supply chains, especially in digital media.
  • The well-publicized news of the ad industry’s ongoing challenges with transparency and fraud.

Aside from mitigating financial risk that could be eroding marketing expense effectiveness, another benefit of agency compliance testing is that it can help allay client-side stakeholder (marketing, finance, internal audit, procurement) concern and further build trust. Trust is crucial, particularly clients are relying on agency partners to fulfill their fiduciary and legal responsibilities in stewarding their advertising funds.

In addition, the level of trust between advertisers and their agency partners has been under siege. Consider ID Comms 2018 Global Media Transparency Survey where only one in ten respondents indicated that their “relationship with their agency or advertising client was trusting.” Further, 40% of respondents believed that trust levels were “average” compared to 52% in ID Comms 2016 survey.

We see first-hand where contract compliance and financial management audits identify and address gaps in understanding, controls and reporting that negatively affect client spend effectiveness and erode agency margins. Whether financial definitions, billing basis, fee calculations, project briefing, the approval process, rework levels, custom reporting requests, and or payment timing issues, audits can provide a prescriptive for positive change to benefit all stakeholders.

In our practice we see three principal reasons why the right-to-audit is not employed often enough – and therefore has become much less effective as a control than necessary:

  1. No clear ownership who is responsible for the Audit function in the context of marketing.
  2. Lack of a formal budget allocation process for assurance and risk mitigation for marketing and advertising spend.
  3. Limited organizational understanding of risks related to the advertising category.

As a result, clients continue to invest billions of dollars annually through their agency partners in spite of never verifying whether there are proper controls and regulations to safeguard those funds and optimize the efficacy of their investment. The need is real. Building effective verification and monitoring tools into client-agency relationships cannot be viewed as an option, but rather a prerequisite.

Fortunately, if the will is there on the part of client organizations, the solution is relatively straight-forward.

  • Responsibility for the checking agency financial compliance cannot rest solely with the marketing team. Finance, internal audit and procurement each have a role to play in the process.
  • Setting up a rotational audit program for each of the organization’s audit partners is paramount. Funding the effort through marketing, finance or internal audit budgets can ensure that the program will be executed as designed.
  • Establishing direct relationships between client-side finance and agency finance personnel greatly enhances an advertiser’s line-of-sight into the disposition of their funds at each phase of the advertising investment cycle.
  • Develop a relationship with a co-source supplier with deep marketing audit expertise.

Enhancing an advertisers control framework to include the regular review of their agency partners’ client accounting practices and controls along with their contract compliance to contract terms will inevitably mitigate risks and lead to better management of this important investment. In the words of Simon Mainwaring, brand futurist and businessman:

“The keys to brand success are self-definition, transparency, authenticity and accountability.”

2021 Resolution for Advertisers: Drop Estimated Billing Approach

30 Dec marketing accountability resolution

It is time for marketers’ treasury management teams to turn their attention and scrutiny to the ad industry practice of “estimated” billing. 

Why now?  The long-standing practice of “estimated billing” is a relic of a bygone era and one that EDI technology has rendered as obsolete. 

Toward what end? Simply put, to improve the management of marketing funds, a material expense, to mitigate financial risks and improve controls in and around the disbursement of cash to marketing vendors.

The fact of the matter is that most client organizations do not have a clear line of sight into the disposition of their funds at each stage of the advertising investment cycle. With estimated billing, once marketing budgets are approved, purchase orders issued, agency billing generated and those invoices paid, advertiser controls are insufficient to monitor their funds once the agency has been paid.  This is largely because advertiser funds are now under the control of “other” parties (i.e. ad agencies, media sellers, production resources, etc.) who take the responsibility for closing jobs and trueing up estimated costs to “actual” in a timely manner. 

Unfortunately, the process for reconciling media campaigns, production jobs and agency fees can extend weeks and months after the attendant activities and or timelines have lapsed. Sadly, there is little incentive for agencies to expedite this process and issue the requisite credit adjustments, discounts and rebates. This is largely because they are in possession of client funds and as long as job/ campaign costs have not exceeded client-issued P.O.’s clients aren’t clamoring for a final accounting of advertising activity.

Billing based upon “final” costs provides an incentive to agencies and third-party vendors alike to quickly and accurately reconcile activities and process invoices for payment. The other to advertiser accounts payable teams is the reduction of paperwork in the form of multiple adjusting invoices associated with the estimated billing approach.

In our advertising assurance consulting and audit practice we have observed first-hand the efficiency of actual (in-arrears) versus estimated (in advance) billing methodologies. One of the key commitments required of advertisers to make this work is to establish accounts payable guidelines for its agency partners that ensure the timely disbursement of the funds necessary to settle third-party vendor obligations in a timely manner. Fundamentally, advertising agencies are not banks and should never be asked to settle vendor obligations made on behalf of clients, with their own funds. Conversely, they should not be earning profit from floating client funds either.

That said, many clients and agencies have cash neutrality clauses in their agreements, which prohibit this type of activity. For those agreements that don’t address this issue, we believe that it is simply not appropriate for an agency to make money on the use of client funds. Period. Disallowing estimate billings and requiring the agency to bill only after expenses have been incurred and actual costs known, is a proven way to minimize non-transparent agency profits. After all, allowing the agency to unfairly benefit was never the intent of the estimated billing process to begin with.

For marketers, transitioning to an “actual billing” process in 2021 makes good sense from both a risk mitigation and control perspective. Further, it is more efficient, can reduce payment processing costs and can potentially improve days payable outstanding performance for the agencies and third-party vendors. In the words of the 20th century American poet, Richard Armour: “That money talks, I’ll not deny, I heard it once: It said, ‘Goodbye’.”

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