Knowing Where Credit is Due Is No Easy Task

In the world of media credit decisions two aphorisms seem to be duking it out. The first is “Nothing is permanent but change.” On the other side is “The more things change, the more they stay the same.”

The September-October issue of MFM’s member magazine, The Financial Manager, includes a column about making credit decisions in the digital age. As author C. Robin Szabo, president of media collection firm Szabo Associates, points out, despite advancements that might have made last decade’s credit professionals feel as if they’d wandered into an episode of The Twilight Zone, media credit fundamentals remain unchanged.

The real difference is that the business has become increasingly complex. In Szabo’s words: “A whole new layer of due diligence is required in order to uphold an organization’s credit policy. It’s not always easy to figure out the best ways to evaluate the credit risks of today’s transactions.” 

Credit Analysis

There’s good reason to make the effort necessary to unravel the complexity. According to the latest report from the American Bankruptcy Institute (ABI), data provided by Epiq Systems showed the total number of U.S. commercial bankruptcy filings increased 28% in August 2016 over August of last year. This makes August 2016 the tenth consecutive month with a year-over-year increase in commercial filings. ABI Executive Director Samuel J. Gerdano predicts more filings on the horizon: “As distress continues in the energy and retail sectors, 2016 business bankruptcies will surpass the totals registered the past two years.”

Of course the challenge for credit professionals involves identifying credit risks before an advertiser or agency files for bankruptcy protection. This is becoming harder in today’s digital media world. As Szabo observes in his article: “New advertisers and agencies with little or no credit history are now entering the field.” On top of that, credit reviews are complicated because “digital buys often involve multiple, specialized agencies that have agreements with each other and/or with the advertiser.”

Determining Payment Liability

What would be ideal, and is admittedly unrealistic, is a credit application from all the parties involved in the buy. That means that the place to start is with an understanding of the agreements between all parties, particularly what the agreements say about liability for payment. Typically these specify sequential liability. As Szabo warns, “With multiple agencies, this can mean that a series of payments occur before the media company, at the end of the chain, receives its money.”

In the case of new advertisers and agencies with little or no financial history, Szabo recommends a studied approach. First, there’s the Secretary of State’s website to check the agency’s or advertiser’s legal status. In addition, he encourages media sellers to “get credit reports from several bureaus and check for consistency between them. Check on the agency’s payment history with other similar companies. Determine how the new agency is financing its operations. Does it have a line of credit? Financial backers? What are the terms?”

Members of BCCA, MFM’s subsidiary that is known as the media industry’s credit association, have a one-stop shop for these answers. BCCA’s Custom Credit Report is based on a credit investigation combined with actual media references. It provides an in-depth snapshot of a client’s ability – and willingness – to pay for media advertising.

BCCA also offers members its new Media Whys credit report that was developed through the powerful combination of guidance from the country’s top media providers, including Cox Media Group, Hearst Television and Media General, with the expertise of Business Credit Reports, the largest independent provider of business and owner credit information, which has created industry-specific credit tools for a number of other industry groups.

These reports provide users with a credit logic score based on industry-specific aging, payment trends graphs, a data depth score, a balance-to-high credit graph, and trade payments information from D+B or Experian.

Programmatic Media Buys

Szabo also reminds readers that selling media by automated platforms doesn’t preclude them from ensuring the buyer can pay for that inventory, saying: “Remember that programmatic platforms used for buying and selling often include some manual controls.“

These controls can allow media companies participating in an open auction marketplace to blacklist certain buyers as well as designate chosen advertisers and agencies. Media sellers can also classify inventory according to its perceived value, and set the level of access for each advertiser and agency accordingly.

Network, Network, Network

Szabo concludes his piece by reminding credit and sales professionals that their call to action should always be, “We are on the same team, and our goal is to make the company as profitable as we can!”

Networking is also one of the best ways to learn about the practices that are already helping sales and credit teams at other stations achieve their goal of converting media sales into collected revenue. That’s been one of the most valuable outcomes for BCCA’s annual Media Credit Seminars.

This year’s event for the media industry’s credit professionals will be held in New York on Oct. 20; we have lined up a number of experts to address such timely topics as credit trends in business and the economy, digital best practices and establishing key performance indicators (KPIs) for extending credit.

Where Credit is Due

Szabo’s piece appears under the banner of our regularly scheduled “Credit Where Due” column. Turning the “where credit is due” phrase back to its more common use, I would like to acknowledge the contributions of those who help us respond to all the changes coming our way.

MFM and BCCA continue to thrive because of the commitment of members such as Robin Szabo, the financial teams at Cox, Hearst, Media General, and others too numerous to name. Whether it’s unraveling liability for a complex media buying arrangement or determining how to account for potential proceeds from the broadcast spectrum auction, they know there’s power in numbers.

I encourage you to follow their example and become involved. Doing so will ensure you have the information you need, when you need it.

Mary M. Collins is president and CEO of the Media Financial Management Association and its BCCA subsidiary. She can be reached at [email protected]. Her column appears in TVNewsCheck every other week. You can read her earlier columns here.