A growing number of TV stations have found that one solution to the problem of late-paying advertisers is to allow clients to pay via credit cards to eliminate the revenue waiting game. Opinions are divided, however, over the practice at some stations of deducting the credit-card company processing fee out of account executive commissions.
I wasn’t quite expecting the reaction that TVNewsCheck received when my first Spot Check column appeared two weeks ago. It focused on ways of prodding payment procrastinators. As one of my sources put it, “You really struck a nerve.”
And the comments that appeared on the site at the end of the column made it clear what I should write about this week: allowing clients to pay via credit cards to eliminate the revenue waiting game.
The credit-card solution was offered up by one reader with the handle Doctor, but another who calls himself Granddaddy” said that his company deducts the credit-card company processing fee out of account executive commissions.
“When you are only making 5 percent commission (I do not work for a major market station and work on straight commission) you can’t afford to take another 3 percent hit,” Grandaddy wrote. Another reader, MrsBeans, deemed that company policy “illegal.”
After phone calls to several people who are variously employed at trade associations, law firms and station groups, I can report that because of the slow-pay problem, TV stations have increasingly turned to credit cards as a solution.
That said, everyone was rather astounded that Grandaddy’s company was taking the fee out of its account executives’ commissions. Sounded draconian to them. However, no one was sure that MrsBeans’ contention that the station was breaking the law or violating contracts was, indeed, correct.
Regardless, for those who aren’t subject to Granddaddy’s situation, there’s a clear incentive for account executives to encourage credit card usage among slow payers, or those on the verge of looking downright deadbeat. Better to get the money somehow, rather than having your commission charged back to the station when the receivable remains outstanding over a long period of time.
One station sales executive explained that his group doesn’t offer the credit-card option at all stations; there’s no overall company policy. And those outlets that do allow it are generally smaller-market stations. Credit card fees may be in the low single-digit percentages, depending on a broadcaster’s volume of sales and what they can negotiate. But the fees can really add up if the invoice is for a large amount of money.
At Meredith Corp., card payments make sense across the board. “We actually encourage clients to pay by credit card,” says Dalton Lee, vice president of finance for the company’s Local Media Brands division. It’s a policy that’s been in place at Meredith for some time, but it’s become increasingly emphasized as an option.
Granted, Meredith’s credit card processing fee expenses have “increased dramatically,” but it’s well worth it “when you’re trying to maintain your DSO [day sales outstanding] at an acceptable ratio,” Lee explains. “It allows you to affect your [financial] results right away.”
Some clients prefer to pay that way, because they can rack up the frequent flyer points. It appears to be a particularly good option for agencies that specialize in digital media. According to one source, they are notorious for paying longer than 180 days past the invoice date.
And it’s also well advised when dealing with customers who are perceived to be a credit risk — like political candidates whose advertising teams scatter to the four winds after election day.
Nobody I spoke with was quite sure whether making the account executive cover all or some of the credit card fees was kosher. But some companies do it and, as far as I could tell, nobody has been sued.
The practice has, in some instances, been used as an incentive to get the account executives to urge clients to pay by check. That type of sales incentive was apparently more the case before the current downturn and before credit cards became more in vogue.
Given the expected uptick in political advertising next year, the credit card trend could increase. To rephrase a maxim: “Use it, or possibly lose it.”
Spot Check is a bi-weekly column about TV station sales by Janet Stilson, a writer who specializes in the media business. If you have comments or ideas for future columns, contact her at 212-694-0126 or [email protected].