Balancing Ad Sales, Credit Risk With Reward

When it comes to the more expensive on-air media buys, TV stations constantly struggle with the question of how much credit to extend to a new advertising client.

As Cecilia de la Rosa, senior credit manager for the Walt Disney Co. explains it, “the dilemma faced by companies issuing credit is how to maximize sales while retaining credit risk at levels that are acceptable to their various businesses areas, which often can have different levels of tolerance for risk and asset management strategies.”

De la Rosa is an expert on credit risk. In addition to her background as a credit manager in the banking industry, her 10-member credit team oversees the credit risk for 25,000 customers who receive roughly $25 billion in credit for sales from one or more of the Disney companies; this requires managing more than 3.7 million credit transactions worldwide each year.

Scott Jenkins, BCCA representative on MFM’s board of directors and senior collections manager for Disney’s ESPN and ABC networks, arranged for de la Rosa to speak at last month’s Media Finance Focus 2015 conference. Jenkins felt it would be helpful for his fellow colleagues at BCCA, the media industry’s credit association, to hear how the Disney companies address this dilemma. This is the type of idea-sharing that typifies our educational forums.

The topic couldn’t come at a better time. BCCA is in the midst of rolling out a new credit product (which I’ll describe a little later in this column), as part of our commitment to ensure BCCA meets the immediate and emerging needs of TV stations and other media providers. Following are some of the considerations de la Rosa and the BCCA members discussed that you may find particularly helpful:

Determine your credit strategy. “Determining your company’s risk/reward appetite will drive your credit strategy,” de la Rosa advises. The factors that affect an organization’s appetite for risk include: 1) cost of goods sold; 2) availability of inventory; 3) marketing strategy; 4) corporate strategy; and 5) default/ credit risk.

Make it company-wide. One of the advantages of centralization is that it can reduce the number of times a credit check needs to be performed when a client either buys TV in multiple markets or purchases advertising from one or more of the company’s other media platforms.

Streamline the review process. Maximize the effectiveness of your credit team and accelerate turn-around time for credit approvals by adopting programs such as taking a deeper dive into the credit worthiness of your high risk customers. Tools like credit scoring and payment probability analytics — such as a three-year trend analysis — can be used for identifying which clients should receive the added scrutiny.

Start the review process sooner. Encourage your sales team to submit information on a new client before the buy is finalized.  

Set unit-specific credit limits. While the credit review will be applied company-wide, credit limits should be established based upon the risk tolerance of each unit (e.g., radio stations may have a higher risk tolerance) and ensure the limits are shared within each group.

Manage your credit. Minimize DSO (day sales outstanding) by appointing team leaders and specialists to handle specific portfolios and manage hold processes for credit limits that are likely to be exceeded. Additional risk management tools include a letter of guarantee from the approved party and requiring cash in advance, cash deposits, or letters of credit.

Create a system for over-rides. The credit team should organize monthly calls involving the organization’s controllers to discuss clients that are approaching their credit limits.

Make sure your documents are electronically supported. It can be time-consuming in the beginning, but creating electronic forms and processes for handling all aspects of credit management will be essential to helping your organization maintain its risk-reward balance.

Remember the macro-economics. There are a number of macro-economic factors that can transform a client with a good credit history into a credit risk. They include such developments as the threat of a disruptive technology; parents cutting off support of their children (e.g. Target Canada); placing a company’s strategic assets under bankruptcy protection (Caesars’ casinos are a good example), and the rise of credit default swaps, which affect who is taking a position in a potential default of the company.

As I mentioned earlier, we are always looking for guidance from our members on how to improve the credit and collections tools that will help them balance credit risk and revenue reward. So it was appropriate that we unveiled BCCA’s newest credit report offering, Media Whys during a conference session that followed this discussion.

BCCA’s new Media Whys credit report includes a credit score based on industry-specific aging combined with trade data from Experian or D&B. The combination of ongoing industry consolidation and centralization and increased interest in programmatic advertising solutions, make this the ideal time to roll out our new product. Media Whys addresses the industry’s need for rapid, accurate, and media-specific information to reduce prospective losses and increase credit response time.

To help us develop the new service we enlisted the aid of Business Credit Reports, which has created industry specific credit tools for a number of industry groups, including the construction, sports, music and medical services markets.

Available only to BCCA members, the media-specific section of the report contains media industry trade payment information, current payment performance and payment trends reported by other industry members.

Until now, our BCCA credit researchers would canvas our members for this information as part of developing a customized credit report. While those services will still be available, the Media Whys report provides immediate, online access to the most recent month’s industry-specific data. (Note that this industry data will only be available to BCCA members and will not be reported to the major credit bureaus unless the media company providing the data requests that it be reported.)

Media Whys reports also include analytics such as a credit logic score — a 0-100 score illustrating risk of severely delinquent payment — and a payment trends graph that illustrates whether the company is improving, declining, or stable. Additional information included is what users would expect from a comprehensive credit report:

• Data depth score     
• Business failure assessment
• Balance to high credit graph
• Secretary of State/corporate registration data
• Company background data from D&B
• Corporate linkage showing all branches, subsidiaries, and including global ultimate parent
• Data on bankruptcies, tax liens, judgments, collection accounts
• UCC filings
• The user’s choice of Experian or D&B trade data

In addition, members who are interested in performing the trend analysis advocated by Disney’s de la Rosa or in automating a portion of their credit decisions, will have access to a comprehensive aging analysis and a media industry-specific credit decisioning tool available as product add-ons. We will work with each company to analyze their credit trends and to tailor automated decisions to that company’s (or group’s) risk tolerance.

We are very grateful to our members for helping us to develop this valuable financial management tool for the industry. In particular, I want to thank the members of MFM’s board of directors, particularly Harry Vasels, formerly CFO of South Central Media (now Interim GM of the company’s Tropical Music Service), and Gary Hoipkemier, SVP-CFO of Schurz Communications, along with Melody Darch, VP accounting of Cox Media Group and Bob Warner, director of credit and collections for Media General, who was involved in developing a similar tool when he was in the construction industry (and was the winner in our contest to name the new service).

Members who provide aging data will receive volume discounts on their Media Whys report purchases. They can also opt to make an upfront investment at varying financial levels that will earn them additional discounts ranging from 10% to 25% for periods of three-to-five years. We already have commitments from Cox and Media General (Founders level), Schurz, (Leaders) and Graham Media Group (Contributors).

Please contact me if you’d like more information about Media Whys or to join your industry colleagues who will have the fastest and most complete information available to make credit decisions. The more you learn about this new report, the more you’ll agree it is the best way to address the dilemma of maximizing sales while maintaining an acceptable level of credit risk.

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.