Unilever to Cut Agency Fees in Half; May Extend Payment Periods

(MoneyWatch)  Unilever wants to cut the "upfront profit margin" it pays to agencies to 5 percent from 10 percent. It is also negotiating to extend payment terms from 30 days to 60 or 90, according to Adweek. The moves fulfills a prediction made here at BNET last month that clients will laugh at agencies who think that the recession means they ought to get paid more quickly. (See "Why Clients Will Laugh at Agencies Who Demand Prompt Payments.")

Here's the nut of Andy McMains' story:

Unilever is asking roster shops to accept less profitability up front, and questioning the hourly rates that agencies charge and whether it should extend the time it takes to pay its bills, according to sources.

Some of the terms, such as payment timing -- currently at 30 days -- are negotiable. But Unilever, which last year spent $7.2 billion worldwide on advertising and promotions according to its annual report, has told its agencies that the new upfront profit margin of 5 percent is not, said sources.

Previously, the base margin was 10 percent, with the opportunity to earn more via a bonus if certain performance metrics were met. Now, roster shops will have to hit such performance measures just to maintain their previous margin

Unilever thus joins clients such as Anheuser-Busch InBev who are pushing payments to 120 days or, like Chrysler and General Motors, pushing payments to "never." (How about never -- is never good for you?)

As you can see by the comments section at Adweek, agency folk are already griping about how it's morally wrong to treat creativity like a commodity.

The fact that the internet, crowd-sourcing and user-generated content have turned creativity into a commodity (BBH offered just $1,500 for a new logo done by an freelancer!) is neither here nor there. The real issue is whether agencies understand that the era of magical thinking is over. For years, agencies regarded themselves as "strategic partners," almost as equals, with their clients. Now, in an era where budgets are shrinking, economic reality is setting in. Agencies turned out to be vendors all along. Who knew?

• See also:
• BBDO Backs Off "Sequential Liability" for Media Outlets
• Why Clients Will Laugh at Agencies Who Demand Prompt Payments
• Omnicom Delaying Payments to Photographers, Too
• Omnicom, in Cash Crunch, to Delay Payments to U.S. TV Producers
• Omnicom Sought to Delay TV Production Payments; a Sign of Cash Crisis?
• Clients Are Delaying Payments to Agencies
• Omnicom, Publicis Worst Hit in Auto Brand Axings