The Martini Shot: Why prompt payment ensures smooth production

by Bobby Amm. The way agencies pay production companies to make their commercials is unconventional and anomalous, to say the least. Unlike other industries — where payment terms are set out in black and white, where contracts are signed upfront and payment is made before the commencement of a big expensive project — in adland, commercials are still often made on an order number and a handshake.

Over 25 years ago

The practice goes back over 25 years when the Association for Communication and Advertising (ACA, then the AAA) and the Commercial Producers Association (CPA) negotiated an agreement recognised by the two associations in the interests of getting things done quickly and without too much fuss, considering this was necessary in an environment where quick turnaround was essential. Aside from a number of other important issues, the agreement dealt with the payment terms and specified that the first 50% would be paid by the agency to the production company at least seven (7) calendar days prior to the commencement of the shoot. This would enable production companies to take on the commitments of the production, bearing in mind that they are, by their nature, smaller companies not capable of financing cash-intensive projects.

The payment of the second 50% was a little more complex — the agreement between the two associations said that the balance would be due after completion of the production (which is defined as the final on-line day) “by no later than the end of the month in which the invoice is dated if the invoice is received before the 16^th of that month or by no later than the 15^th of the following month if the invoice is dated later than the 15^th of the month. If the commercial is scheduled to be broadcast prior to the date on which the 2nd 50% is due, then the 2nd 50% automatically becomes payable before the commercial is flighted.” The agreement goes on to state that payment to the production company may not be deferred or delayed as a result of the agency not receiving payment from their principal. This usually allows for a 15-to-30-day period for payment, which is in line with most-accepted payment terms and is legitimate in that production companies are often required to pay their suppliers either a sizeable deposit or the full amount upfront and their crew (who can account for up to 35% of the budget) within a 20-day period. The commitment and financial risk on a production also lies exclusively with the production company, which adds considerably to the pressure.

The upside of prompt payment for the agency is that it enables production companies to be so much more cost-effective and confident in the execution of the commercial. If the necessary cash flow is available and there is less stress, the production company is in a better position to service its client efficiently and deliver a better end product.

Suiting all parties

The “ACA CPA Agreement” has worked very well for many years and has made the process of commissioning the production of TVCs a very straightforward one, suiting all parties. The recommended agreement has been updated through a process of negotiation between the associations when this became necessary and the last round of major changes was finalised in 2010. If there was a dispute between the parties and, provided a separate agreement had not been entered into, the ACA and CPA would simply refer to the agreement and advise their members accordingly. As a result, differences of opinion have been quickly and easily remedied, and both parties have understood exactly what has been expected of them.

In recent years, the situation has changed as the industry has become increasingly corporate and the culture and practices of the multinationals have taken root. Agencies are now questioning where this ACA CPA arrangement came from and if it’s really such a good idea. As a result, fewer agencies — even if they are ACA members — are recognising and sticking to the payment terms, and this has had a negative knock-on effect for production companies that are finding themselves under increasing pressure in these demanding times. The absence of prompt payment by agencies poses an increased risk which production companies are finding challenging to mitigate.

With things no longer working optimally, production companies are now under pressure to draw up their own contracts which stipulate payment terms and other conditions, and so the production of each commercial could soon become an individual negotiation between agency and production company — which will be time-consuming and delay schedules considerably. These job-by-job negotiations will also need to involve legal practitioners, adding to the cost of producing commercials.

Makes for better relationships

Due to the impracticalities of this new way of working and the pressure created when agencies don’t pay timeously, the CPA would like to see agencies recommitting to the agreement which has worked so well for over quarter of a century. If agencies can’t meet the default payment deadlines, they should advise production companies of their constraints when they brief out the job and set out exactly when payment will be made, thereby enabling production companies to plan accordingly and eliminate the many headaches that accompany unforeseen payment delays.

This makes for better communication and good working relationships between agencies and production companies.

Bobby Amm is chief executive of the Commercial Producers Association of South Africa (CPA), the trade association of production companies that produce television, cinema and internet commercials for the local and international market. After a brief stint in journalism, she began her career in the industry at the Consultative Committee for the Entertainment Industry in the early 1990s. She first joined the CPA in 1997 but left three years later to join a production company. After finding that she missed the big-picture perspective of the CPA and the interesting issues which continuously perplex the production industry, Bobby returned to the CPA in 2003. She contributes “The Martini Shot” column monthly, covering developments, trends and insights into the commercial production and film services industries in South Africa, to MarkLives.

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