FRONT OFFICE BY MARY COLLINS

New Media Requires Tougher Credit Checks

As non-traditional media revenue continues to increase in leaps and bounds, the need for more diligent credit sleuthing grows along with it. LIN Media's credit and collections chief Greg Frost has some tips for how you can avoid coming up short when dealing the new breed of advertisers and their agencies.

Interactive advertising is the real bright spot in media companies’ non-traditional revenue now. However, these buys can also involve more players than the traditional transactions that used to be our bread and butter. That means media companies must do their credit homework before approving credit for today’s multiplatform media buys.

This is the advice provided by Gregory Frost, manager of credit and collections for LIN Media in an article appearing in the March-April issue of MFM’s The Financial Manager.   

 As Frost notes, many media companies have been blessed with double-digit increases in revenue from their digital platforms in recent years. This trend necessitates an enlarged “to do” list for credit managers, whose job is to ensure this non-traditional revenue (NTR) is collected.

One of the first challenges for credit managers is that these digital media buys are often made by new agencies dedicated to non-traditional media. Finding sufficient credit information about these new companies involves some extra steps for credit managers. Frost has also seen many instances where additional agencies involved in an NTR buy weren’t initially disclosed by the agency working with the station’s sales team.

Frost, who is a member of the leadership committee for MFM’s BCCA subsidiary, and who was honored with our BCCA Member Contributor award last year, has become one of our experts on NTR credit analysis. He has identified three key areas that need to be addressed before making a credit decision for these advertisers: contract agreements, financial responsibility and credit and financial data.

Contract agreements

BRAND CONNECTIONS

With the likelihood that more than one agency will be involved in an NTR media buy, there’s a good chance more than one agency will also be involved in the payment process. This means that more than one agency will need to be part of the credit review. Frost recommends, if at all possible, you obtain a copy of the agency’s contract with the advertiser, which would most likely clarify the payment process.

He also suggests asking your legal department to review the contract. He notes that, “Many contracts include terms in the fine print that your sales teams either will not understand or simply fail to review.”

Of course, many agencies may be reluctant to provide a copy of their contract with the advertiser. When this happens, Frost says it’s important to obtain the name, address and phone numbers of all parties involved in the buy. In fact, the primary agency will typically have a “credit and financial info” sheet on the companies that contains this information; a sheet which they can provide to you.

Related Story  WATN Names Denisha Thomas News Director

Financial Responsibility

As Frost points out, determining credit risk isn’t the only responsibility of the credit manager. These individuals in your company are also charged with collecting those revenues. This means that your credit managers must help to determine when payment is expected as well as which party is responsible for making the payment.

This becomes very important in the case of non-traditional media transactions, where it’s not uncommon for money to change hands three or four times before your company is paid. Frost says these situations point to the need for a signed payment liability document that defines who is responsible for payment to your company and when.

As we have discussed in earlier columns, there are a number of scenarios for liability responsibility.They include sequential liability, where the seller can only hold one company responsible for payment at a time. In these agreements, each party is released from liability once they pay the next party in line. This makes it essential for your credit managers to conduct a credit review of every company in the payment chain. 

While many advertising agencies prefer this scenario, it puts a tremendous burden on the stations’ credit application and collections processes. This is why MFM has long supported a “joint and several” liability policy. In this situation, all parties involved in the buy, including the advertiser and the advertising agency, are responsible for payment until your company is actually paid. This form of liability improves your ability to collect the payment, especially if one of the parties seeks bankruptcy protection.

Frost also describes two other scenarios, Sole Liability: Agency and Sole Liability: Advertiser, which limit the number of parties who must become involved in the credit application process. In the case of Sole Liability: Agency, the agency that places the buy with your station is responsible for payment whether or not it gets paid by the other parties to the buy. This makes it easier on the media provider, but it is still important to know as much as you can about both the advertiser and the agency making the buy. There’s nothing wrong with asking the agency to share the results of its credit review of the advertiser. 

Since most media buys are placed by an agency, the Sole Liability: Advertiser scenario adds to the sleuthing your credit managers will have to conduct and can be confusing to the advertiser. Frost recommends modifying your standard payment liability document by adding language such as “Advertiser guarantees payment to [media company name here] until [the media company] is paid either by the advertiser or agency. Payment from advertiser to agency does not constitute payment to [the media company].” This modified document should be signed by the advertiser. 

Related Story  Phyllis Somerville, Actor Of Stage And Screen, Dies At 76

Credit and financial data

With so many new agencies involved in non-traditional advertising, Frost says it can be very challenging to find the credit and financial data required for determining an agency’s creditworthiness. “It’s not so much a matter of finding negative information, but rather a lack of information about a particular buyer,” he explains. In the case of agencies that have been in operation for less than a year, he suggests taking extra steps to obtain as much information about their operations as possible. These actions should include:

Verify Legal Status Since most ad agencies are incorporated, credit managers can check their legal status by accessing their state’s corporation bureau Web site. Using this free service to compare the agency’s legal name, date established and officer information to the information listed on the credit application will eliminate future headaches and can also tell you if the agency is in good standing.

Obtain Multiple Credit Reports While it means more time and work, pulling a report from more than one credit reporting service can help flesh out the credit picture. This is one of the reasons that we have added a second credit report — a Commercial Credit Report – to the products we offer our BCCA members. Frost recommends looking for consistency among the reports, including the same credit rating, which should be above-average. Variable credit ratings from one report to the next are a good reason for some additional sleuthing.

Seek Out Industry-Specific Organization Data Frost recommends BCCA’s Custom Credit Report for its ability to provide industry-specific data for an agency or advertiser. Some markets may also have a local credit group that is industry-specific.  As he observes, sharing payment history on mutual agencies is very useful information and can help you make a well-informed decision about an ad agency that’s been in business for only a short time. 

Use Banking Information — Since most new companies begin operations with a loan or line of credit from a banking institution, asking about their financial operation plan for the first two years of business can be helpful. If the agency has financial backing from a bank or other form of investor, Frost suggests asking what the terms are.This information should be verified with their banking contact, who can also confirm that the agency is current, according to the bank’s terms.

Consider Market Presence — The credit review process should also take into consideration your company’s share of the market where the new order will be running. In markets where a company has a large share, a credit manager can be more conservative with their decisions. In markets where a company is striving to increase share, a more liberal approach may be appropriate. 

Related Story  AJA Video Systems Pulls Out Of NAB Show

It’s a team effort

Credit risk is best managed when you involve your company’s senior management and local sales management to ensure that your decisions support the company’s strategic goals as well as local market goals and objectives,” Frost reminds us. This becomes particularly important in the case of NTR buys. Moreover, involving the sales team will help them to know the right questions to ask during the sales process, which will lead to quicker placement of the ads.

As Frost concludes, “If there’s anything that the last few years have taught us, it’s that every new revenue prospect – and every new client – holds tremendous potential. By taking these extra precautionary steps to ensure payment, you can potentially save your company’s financial team from extra work and aggravation down the line.”

Greg Frost’s article is one of a series of submissions that comprise a Special Report on Credit & Collections in the March-April 2011 issue of TFM. Compiled by TFM editor Janet Stilson, a highly regarded journalist who follows the media industry, the issue is currently available to non-members via MFM’s website as part of our broader mission of advancing financial management practices throughout in the industry.

Advancing the art — and science — of credit and collections will also be a major component of Media Finance Focus 2011, the 51st annual conference for MFM and its BCCA subsidiary, where featured topics will include:

  • Today’s advertising agency
  • Credit card payments
  • Social media credit tools
  • Unique credit issues for digital products
  • Legal issues of credit  

The conference will be held from May 15-17 at The Westin Peachtree Plaza in Atlanta.Thanks to the participation of experts like Greg Frost, we will fulfill its theme of “Empowering Growth, Inspiring Progress.” 

Media Finance Focus is the only conference devoted to financial issues affecting the media industry. As Greg Frost’s article on NTR reminds us, these financial issues include keeping up with the digital times in order to keep our revenues up as well.


 

Mary M. Collins is president & CEO of the Media Financial Management Association and its BCCA subsidiary. Her column appears in TVNewsCheck every other week.You can read her earlier columns here.


Comments (0)

Leave a Reply


More News