Independent agencies within the Arabian Gulf’s marketing and communications industry say they are facing a cash-flow crisis as economic uncertainty continues to bite.
Non-payment and late payment by clients and big agency networks is threatening the existence of independent agencies and start-ups, with an industry-wide fear of spending crippling those agencies too small to afford to take legal action.
Shamim Kassibawi, founder and managing director of Dubai-based boutique public relations firm Spread Communications, says small and medium-sized enterprises (SMEs) are facing an increasingly hostile business environment as the region suffers from economic hardship in the wake of the oil price crisis and political instability in the wider Middle East.
This is in spite of increased efforts from governments across the Gulf — and the UAE in particular — to help in the development of the SME sector. And with the SME World Summit set to take place in Dubai in March, Kassibawi believes it is important to recognize the benefits and challenges smaller players face in the current business climate, particularly in relation to clientele.
“We have observed incidents with brands and clients who do not re-spect payment deadlines and some who do not pay at all,” said Kassibawi.
“Irregular payments from clients continue to have a detrimental impact on businesses across the region, resulting in limitations of business activity such as business expansion and the creation of jobs. Cash flow is one of the reasons why entrepreneurs fail, and in a market where businesses are paid for their work 90 to 180 days behind schedule, will not lead to productive business relations.”
Joe Akkawi, partner at Paz Marketing, which specializes in public relations, events and social media planning, agrees.
“SMEs depend heavily on a steady cash flow stream to cover expenses primarily due to how the industry is set up for starting a business in the region,” he said.
“Banks in particular take no steps to make the lives of smaller companies easier and expect us to work with them the same way a multi-national conglomerate would. This lack of payment from clients puts us in a tough spot because we want to pay our own suppliers and team on time. Failure to do so creates an even bigger bottleneck be-cause companies our size tend to work with similar-sized companies due to budgets and work agreements. One small agency’s problem can quickly turn into an issue effecting multiple suppliers.”
He added: “You would imagine that if a company has a payment structure in place, they would pay all suppliers regardless of their size based on that schedule. I personally attribute this issue to companies feeling that, because we are a smaller agency, they can get away with letting us wait without running into any legal issues. This is also made easier by the fact that we ask for a lot less money than what bigger agencies tend to charge for similar services. Couple that with the fact that we really cannot go to court over those small amounts, anyone can get away with delaying payments without running into any issues with us.”
The end results are obvious. Smaller agencies falter or close, salaries go unpaid, jobs are lost and the whole SME ecosystem is undermined. Cash-flow issues can also limit innovation, while diversification becomes increasingly difficult.
It is not, however, a problem that is limited to independent players.
“It is a problem for all agencies,” said Tim Baker, chief executive at Hug Digital, which was founded in 2010 and specializes in digital, content and influence marketing, as well as social media and re-search.
“There is a broad culture of not paying on time in the region that is holding the industry back. We have seen many great-looking businesses suffer due to empty promises or vague payment plans.
“In more mature developed markets the tolerance for late payment is different. If clients do not pay, then the work stops. Agency leaders here need to toughen their stance over time, to improve things for our industry. With the growing importance of digital, planning cycles have got shorter yet payment cycles seemed to be extending. We need to arrest this disparity and take some tough decisions as business leaders where needed.”
Payment is an issue that needs to be faced head-on by the advertising industry as a whole, although for smaller operations it is a matter of extreme urgency. But what can be done? Apart from taking tough business decisions as individual agencies, as Baker says, what kind or strategy is required?
“It would be great progress to see a government-backed initiative supporting smaller businesses such as a helpline or an online portal that offers legal advice and solutions, where firms can file a report with all the necessary legal documentation needed to solve their disputes,” said Kassibawi.
“Mentorship or advisory boards should be created, where SME owners should be encouraged to refer to specialists if they are not sure how to proceed with an issue, and firms should be required to release information regarding their payment terms to hold bigger businesses accountable for their deferred payments, with explanations required for why they are late.”
She added: “The SME sector will not make headway if this crucial is-sue is not addressed, as individuals and businesses might be fearful and hesitant to complete work with clients who they feel might not pay even though a contract was signed. There needs to be a way for invoice dates to be respected and honored among all business owners.”
Non-payment and late payment by clients and big agency networks is threatening the existence of independent agencies and start-ups, with an industry-wide fear of spending crippling those agencies too small to afford to take legal action.
Shamim Kassibawi, founder and managing director of Dubai-based boutique public relations firm Spread Communications, says small and medium-sized enterprises (SMEs) are facing an increasingly hostile business environment as the region suffers from economic hardship in the wake of the oil price crisis and political instability in the wider Middle East.
This is in spite of increased efforts from governments across the Gulf — and the UAE in particular — to help in the development of the SME sector. And with the SME World Summit set to take place in Dubai in March, Kassibawi believes it is important to recognize the benefits and challenges smaller players face in the current business climate, particularly in relation to clientele.
“We have observed incidents with brands and clients who do not re-spect payment deadlines and some who do not pay at all,” said Kassibawi.
“Irregular payments from clients continue to have a detrimental impact on businesses across the region, resulting in limitations of business activity such as business expansion and the creation of jobs. Cash flow is one of the reasons why entrepreneurs fail, and in a market where businesses are paid for their work 90 to 180 days behind schedule, will not lead to productive business relations.”
Joe Akkawi, partner at Paz Marketing, which specializes in public relations, events and social media planning, agrees.
“SMEs depend heavily on a steady cash flow stream to cover expenses primarily due to how the industry is set up for starting a business in the region,” he said.
“Banks in particular take no steps to make the lives of smaller companies easier and expect us to work with them the same way a multi-national conglomerate would. This lack of payment from clients puts us in a tough spot because we want to pay our own suppliers and team on time. Failure to do so creates an even bigger bottleneck be-cause companies our size tend to work with similar-sized companies due to budgets and work agreements. One small agency’s problem can quickly turn into an issue effecting multiple suppliers.”
He added: “You would imagine that if a company has a payment structure in place, they would pay all suppliers regardless of their size based on that schedule. I personally attribute this issue to companies feeling that, because we are a smaller agency, they can get away with letting us wait without running into any legal issues. This is also made easier by the fact that we ask for a lot less money than what bigger agencies tend to charge for similar services. Couple that with the fact that we really cannot go to court over those small amounts, anyone can get away with delaying payments without running into any issues with us.”
The end results are obvious. Smaller agencies falter or close, salaries go unpaid, jobs are lost and the whole SME ecosystem is undermined. Cash-flow issues can also limit innovation, while diversification becomes increasingly difficult.
It is not, however, a problem that is limited to independent players.
“It is a problem for all agencies,” said Tim Baker, chief executive at Hug Digital, which was founded in 2010 and specializes in digital, content and influence marketing, as well as social media and re-search.
“There is a broad culture of not paying on time in the region that is holding the industry back. We have seen many great-looking businesses suffer due to empty promises or vague payment plans.
“In more mature developed markets the tolerance for late payment is different. If clients do not pay, then the work stops. Agency leaders here need to toughen their stance over time, to improve things for our industry. With the growing importance of digital, planning cycles have got shorter yet payment cycles seemed to be extending. We need to arrest this disparity and take some tough decisions as business leaders where needed.”
Payment is an issue that needs to be faced head-on by the advertising industry as a whole, although for smaller operations it is a matter of extreme urgency. But what can be done? Apart from taking tough business decisions as individual agencies, as Baker says, what kind or strategy is required?
“It would be great progress to see a government-backed initiative supporting smaller businesses such as a helpline or an online portal that offers legal advice and solutions, where firms can file a report with all the necessary legal documentation needed to solve their disputes,” said Kassibawi.
“Mentorship or advisory boards should be created, where SME owners should be encouraged to refer to specialists if they are not sure how to proceed with an issue, and firms should be required to release information regarding their payment terms to hold bigger businesses accountable for their deferred payments, with explanations required for why they are late.”
She added: “The SME sector will not make headway if this crucial is-sue is not addressed, as individuals and businesses might be fearful and hesitant to complete work with clients who they feel might not pay even though a contract was signed. There needs to be a way for invoice dates to be respected and honored among all business owners.”
