WPP has warned that its agencies, particularly the media buying arm Group M, must improve fundraising from “major customers” as soon as money is due “by the due date.”
Paul Richardson, the group’s chief financial officer, told investors during WPP’s annual results: “We had too many of our businesses allowing customers to pay beyond agreed terms in certain specific markets.
Richardson said Group M, the world’s largest media buyer with over $ 45 billion in annual billings, is “really key” to WPP’s cash flow and has been “task and very responsive and motivated “to improve fundraising.
Separately, WPP revealed in its annual results that bad debts jumped to £ 55million globally, from £ 19million a year earlier.
The UK operation suffered an estimated impact of £ 17million as it was “severely affected by bad debt, particularly in the first half” of 2018, Richardson said.
The UK said a profit margin of 14.5% which generated an operating profit of £ 245million, but it would have been “closer to 15.5%” without the bad debt, according to Richardson.
A 1% margin difference on UK net sales of £ 1.69bn equates to £ 17m of lost profit.
There was no word from WPP on the reason for the bad debt in the UK.
However, it emerged last year that Group M was a major creditor of video advertising platform Videology when it collapsed.
A spokesperson for the WPP declined to comment.
A source close to the company said the bad debt was not necessarily related to its call for better cash collection.
WPP is introducing more “shared services” to improve business processes, including fundraising, across the group.
Under the leadership of its former managing director, Sir Martin Sorrell, WPP complained about increasing purchases and customers demanding “extended payment terms”, which it said “were starting to show up on agency balance sheets. “.
Some customers would require payment terms of 60, 90 or even 120 days.
UK advertising industry insiders say agencies also need to be more vigilant to get paid, as street retailers are going through a scorching time and struggling to get credit insurance.
WPP reported a second consecutive year of declining net sales, including a 0.5% drop in the UK, last week.