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Prolonged Payment Periods Create Undue Hardship for Small Suppliers, Particularly Affecting Minority- and Female-Owned Businesses

Business figures advocated for transformation at GSD&M's conference held in Austin, Texas, this week.

Executives urged transformation during GSD&M's summit held in Austin, Texas this week.
Executives urged transformation during GSD&M's summit held in Austin, Texas this week.

Prolonged Payment Periods Create Undue Hardship for Small Suppliers, Particularly Affecting Minority- and Female-Owned Businesses

In the face of a financial reckoning within the advertising industry, smaller, diverse, minority, and women-owned businesses are disproportionately affected by extended payment terms and the abbreviated review processes associated with Request for Proposals (RFPs).

As sectors of the advertising industry brace for an economic downturn and reduced ad budgets, some vendors are delaying payment to their partners, while others are expediting the RFP process and requiring faster campaign turnaround times. This pressure can be particularly challenging for smaller businesses.

Recently, during a summit hosted by GSD&M, AAF Austin, and the Omnicom Advertising Collective in Austin, Texas, business leaders voiced their concerns about the added strain that prolonged payment terms and accelerated RFP processes create for small and medium-sized enterprises.

During economic downturns, long payment terms can exacerbate cash flow issues for smaller businesses due to their limited financial resources. Such businesses may face liquidity problems when the gap between service provision and payment receipt becomes extended. Furthermore, time and resources may need to be diverted away from core activities to manage and chase unpaid invoices.

Simultaneously, abbreviated RFP processes can present obstacles for small businesses by restricting the time available for crafting comprehensive proposals. This can disadvantage these businesses, which may lack the substantial teams and resources needed to swiftly respond to RFPs.

However, economic downturns can also present strategic opportunities for growth and market share expansion, particularly in terms of lower advertising costs. Smaller businesses can achieve higher visibility at a lower cost, as many media platforms reduce advertising rates during difficult economic periods. Furthermore, by maintaining or increasing advertising spend in comparison to competitors, businesses may be able to gain market share, positioning themselves for long-term profitability improvements.

Small-business owners might struggle more in finance due to extended payment terms and the shortened RFP processes, as these can worsen cash flow issues and limit their ability to respond comprehensively to RFPs. Yet, these difficult economic times could potentially benefit small businesses through cheaper advertising costs, offering them higher visibility and a chance to gain market share.

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