Collins | The Challenge Facing Today’s Credit Departments

Winston Churchill is reported to have said: “Never let a good crisis go to waste.” He probably wasn’t the first person to use such a phrase. In fact, its origins don’t really matter. As we were taught in childhood, it’s the thought that counts.

For media businesses, the COVID-19 pandemic, and related recession, accelerated trends related to the introduction of new advertising products and accepting new and different types of advertisers. It is also exacerbating the problem of slow payments and accelerating business failures. Given these changes, it may be time to re-evaluate credit approval and accounts receivable practices.

Targeted digital products and OTT offerings put media advertising within reach for smaller, niche, and digital companies. In an article appearing in the current issue of MFM’s member magazine, The Financial Manager, Griff Dudley, director of American Express Merchant Services, suggests that policies that work for large national advertisers may not be the best for these new advertisers.

Dudley asserts that small businesses need to be nimbler, that their strategies unfold over a shorter horizon than those of the more traditional big brands. Particularly focused on return, they expect to track both brand awareness and ROI in conjunction with their digital marketing. These companies don’t have access to big research departments.

Thus, digital marketing is a must-have for promoting their products or services and optimizing online assets is also critical to their business’ overall success. He believes that those media companies with “the processes, products and strategies that appeal to customers with tighter purse strings” will be the ones to succeed is this new environment.

Not A One-Size-Fits-All Solution

There is a difference in how small businesses and consumers shop today, Dudley says. Integral to managing this change is the credit and accounts receivable team. He stresses that this group must be viewed as mission-critical in terms of customer experience and retention. Dudley says that for these smaller clients, payables and purchases are handled differently than has been the case for larger advertisers.

This, he says, is the new normal of “one-to-many” that thrives on the scale and frequency of digital transactions. In this scenario, the business is likely dealing with an unknown customer and a hands-off transaction.

Dudley says the solution requires implementing different credit and accounts receivables processes and considering additional financing tools. These will allow the credit teams to both capitalize on these new trends while protecting their firms, thereby driving “efficient and legitimate payments.”

Naturally, as an employee of a credit card company, he recommends media companies expand their acceptance of cards to pay for media buys and to use tools available from these companies to help verify creditworthiness.

As Dudley explains, small businesses have different financing needs and utilize credit differently. Referencing a 2018 Mercator Research Team study, Small Business Payments and Banking Survey Series Report, he says more than “50% of small businesses were borrowing on credit cards, and one in four did so regularly.” Additionally, according to the same report, 78% of small businesses rely on their line of credit to run their business.

Customer demographics may also come into play, he says. Businesses, working to attract what Dudley calls “the proverbial ‘millennial B2C customer’” are hiring “millennials to also make purchasing decisions.”

In 2017, Forrester prepared a report called Millennial B2B Buyers Come of Age. This report, Dudley says, predicts “millennials will make up 44% of the workplace by 2025, and 73% of them are already involved in B2B purchasing decisions.” He argues that this group grew up using “one-click” payments for their personal purchases and expect the same convenience in the workplace.

Fighting Fraud

There’s no question that using manual credit approval processes for customers who will be making small and frequent processes is inefficient. At the same time, such transactions present the potential for fraud.  Thus, the company may need to consider a new process.

The author asks two questions that can determine how to plan the new process. These are:

• How much credit will the business extend to such customers?
• Are “these transactions or the underlying business processing these payments or requests legitimate in the first place?”

These can be difficult questions to answer, even when the media company has access to media-specific credit information such as that available from MFM’s wholly owned subsidiary, BCCA. This is particularly true when the media advertiser is a sole proprietor. In such cases, Dudley recommends taking advantage of data gathering through services such those offered by his company. Such services can identify known or emerging fraudulent activity. His article includes a graph that demonstrates the value of “evaluating the legitimacy of transactions against broader payment network data.”

Managing The Overall Receivables Portfolio

Dudley cites a 2018 report from insurance credit company Atradis called The Americas, An Increase of Overdue B2B Receivables when saying that more than 40% of such U.S. invoices are not paid on time. MFM’s own quarterly Television DSO report for the first quarter of this year shows that, on average, stations waited 71 days for payments for local advertising and 93 days for national accounts to pay. This means that the credit team faces the dual challenge of approving credit for new types of advertising clients while continuing to manage the increasingly difficult order-to-cash process for both traditional and new types of advertisers.

In the spirit of not letting a good crisis go to waste, companies may want to look at all aspects of their order-to-cash process, including:

• Employing new metrics to analyze the accounts receivables portfolio.
• Considering additional automation.
• Surveying clients about preferred payment methodologies.
• Renegotiating or cutting payment terms.
• Asking the experts, the credit team, for recommendations.

MFM continues to work with its members to help make them more knowledgeable and valuable today while developing the next generation of global media leaders. To do this during the pandemic, we have increased our opportunities for online learning. At 1 p.m. ET on Oct. 15, MFM and BCCA’s Distance Learning Webinar focuses on Mining Data for Hidden Revenue in 2020. Then, the following week, on Oct. 20-21, we are offering the virtual version of the association’s signature Media Outlook seminar with a group of expert speakers who will each share their vision of how uncertainty, regulation, and new ways of working will affect media companies in 2021 and beyond. Information about both programs is available on the MFM website.

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, Facebook, Instagram, and Twitter accounts.