Collins | How To Tackle Past-Due Advertiser Accounts
Media advertising, unlike more other consumable experiences — think plane flights, theater, sporting events or even your morning latte — does not require payment in advance. Think about how few fans might be willing to pay if they got the bill after their favorite team played poorly and lost. When all is said and done, the sale is not complete until payment has been received.
Unlike the examples listed above, media advertising also requires dedicated sales efforts. No one would dispute the notion that stations’ ad sales teams should be spending their productive time selling. Nor would one argue that credit professionals should spend time doing things other than evaluating credit to get potential advertising customers on air. Still, both sales and credit teams report that collecting on past-due accounts often cuts into their productive time.
Alex Rosen, COO and general counsel for the collection agency American Financial Management, says media advertising clients’ non-payment can generally be categorized under one of two headings: “customer disputes,” and “promise-breaking customers.” Those customer disputes will likely require sales’ involvement. Promise-breakers need a different approach
In an article he wrote for the current issue of MFM’s member magazine, The Financial Manager (TFM), Rosen provides some recommendations for ways media providers can save themselves time, money “and possibly even grow the customer relationship” when addressing these situations.
While they are primarily focused on the assignments that fall to the collections group, Rosen’s tips also include actions that can be optimized when sales and collections work as a team.
The typical process of billing after a media buy and allowing 30 days for payment already means stations must spend a considerable amount of time waiting for a payment to be received. This time span becomes longer when the client fails to review the invoice upon receipt or to proactively contact the company to identify a billing discrepancy.
In some cases, a dispute with the invoice isn’t raised until the client is contacted by the collections team when the account is past due. Rosen suggests the following considerations when determining which disputes are legitimate and how to settle them. There may be areas where the collective resources of sales and credit teams can work to sort out the issue and speed payment.
- As a general practice, media providers should ensure everyone in their sales and credit teams is familiar with the terms and conditions contained in media purchasing agreements, particularly any areas that are frequently cited in billing discrepancies.
- Upon learning of a dispute, it is important to immediately contact the advertiser to learn as much as possible about the reason for the dispute.
- Company culture and reputation will also play a role in the resolution some companies settle others show no leniency.
- Critical customer information, such as buying power, may play a role in deciding how to handle the situation.
- Determine how the contract was formed and the terms that governed the agreement.
- Investigate other significant file facts, such as any customer collectability issues.
“This dispute analysis will give you the tools to narrow the scope of the issues and shift the customer’s focus to the crux of the problem,” Rosen has found. From there, the information can be used to expedite the settlement of legitimate disputes or “escalate the file” if the dispute is meritless and the customer still refuses to pay.
Rosen says the best option for legitimate disputes is to settle the matter, beginning with segmenting the disputed and undisputed portions of the unpaid balance. He recommends requesting full payment for the undisputed portion coupled with an agreement for payment and/or credits for the disputed portion.
The more challenging collections situations are the ones involving a media buyer who routinely makes unfulfilled promises (“the check is in the mail”), breaches an agreement, files a dispute long after the fact or evades correspondence.
When this happens, Rosen recommends escalating payment communications “to someone who can provide better leverage.” These individuals include the advertiser’s accounts payables manager, controller, CFO, CEO or owner. It will also be necessary to find out the new person’s contact information and determine the best time and contact method for generating a quick response.
When escalations efforts become a dead end, Rosen encourages collections managers to complete a cost/benefit analysis for determining whether it is in the company’s best interests to “waive, settle, continue internal pursuit or intensify efforts to collect the past-due amount.” This analysis should also consider the company’s strategic objectives and reputational concerns.
Rosen also identifies the type of information that can be used to assess the likelihood of collecting payment. This information addresses such questions as: “Is the business still open and operating?” “Is it an active entity with its domicile’s secretary of state?” “Did the customer allege financial hardship?” Or, “Is the customer experiencing severe financial distress?”
Signs of financial distress may include unpaid collection balances, numerous uniform commercial code (UCC) creditors, cautionary liens filed by UCC creditors, or involvement in legal proceedings. Much of this information may be obtained through MFM’s BCCA subsidiary, the media industry’s credit association.
As I mentioned in an earlier column, BCCA’s credit reports provide this type of information along with industry-specific data concerning advertisers. They include Media Whys, which complements the broader set of financial data with credit scores and credit decisioning tools that rely on a proprietary media-specific aging database. More information and samples of Media Whys reports and the other credit reports BCCA offers are available on the association’s website.
Settlements And Outside Help
When settlement becomes the better course of action, Alex Rosen believes it is more advantageous to secure an immediate lump-sum payment for less than the full amount. If, however, the media provider agrees to enter into a payment plan agreement, it should include a personal guaranty, promissory note and/or agreed judgment upon default.
Rosen also recommends obtaining post-dated checks or credit card information to automate the payment process. Unfortunately, as he says, “It is inevitable that some promise-breaking customer files will not conclude favorably.”
Finally, it may become necessary to get the outside help of an outside collections firm to protect the company’s interests. Rosen suggests these situations will include accounts where:
- The amount owed exceeds a certain threshold determined by the station or station group;
- The customer is an open and operating business; or
- The customer does not have any apparent and substantial collectability or service issues.
Potential Pitfalls Of Electronic Transactions
If you would like to read more of Rosen’s advice, an electronic copy of the September-October issue of TFM containing his article is currently available on the MFM website.
In addition to the areas it addresses, TV stations and other media providers must ensure the growing use of use of online portals for advertising transactions doesn’t hamper collections efforts. These concerns will be addressed by Mary Seymour, a partner at Lowenstein Sandler LLP specializing in bankruptcy, financial reorganization and creditors rights, at the upcoming 2018 Media Credit Seminar, to be held on Oct. 25 in Midtown Manhattan.
Seymour will lead a session focusing on the the legal considerations for companies engaging in electronic business transactions. A separate presentation by Seymour will discuss the use social media as a tool for credit evaluations and collection of past-due accounts. More information concerning the event may be found on BCCA’s website.
As Alex Rosen observed in his article, “Handling customer disputes and working with promise-breaking customers can be a long and painful process.” His advice, combined with the knowledge that will be shared at the upcoming Media Credit Seminar and in other BCCA/MFM events, can help to lessen that pain and shorten the time spent on collections. That’s something that will benefit media ad sales and credit teams alike.
Mary M. Collins is president and CEO of the Media Financial Management Association and its BCCA subsidiary, the media industry’s credit association. She can be reached at [email protected] and via the association’s LinkedIn, Twitter or Facebook sites.