Taking A Credit Risk Can Be Rewarding

C. Robin Szabo, president of Szabo Associates, says a good credit manager knows the difference between managing credit risk and avoiding it: “The goal of monitoring the high-risk customer is to determine — as early in the game as possible and at any given time — who will pay, who cannot pay and who will not pay.” He explains how stations and their credit managers can make those determinations.

If you picked Villanova to win the 2016 NCAA Basketball Championship or Danny Willett to win the Masters last weekend, you know that sometimes you have to take a risk and look beyond the conventional wisdom in order to make the best decision. This can also be true when it comes to taking a chance on an advertiser or agency that would be considered a credit risk.

This point of view may seem surprising in light of my recent columns, which sought to paint a complete picture on how to avoid bad debt and improve DSO (days sales outstanding). However, as C. Robin Szabo, president of Szabo Associates, media collection professionals, points out, limiting credit to customers with impeccable credit histories may result in lower DSO and reduced losses against sales, but it will also lower company profits and create “many disappointed prospective customers and disgruntled sales personnel” along the way.

A member of MFM’s board of directors, Szabo’s observation appears in an article he wrote for the special report on credit and collections in the March/April issue of MFM-BCCA’s The Financial Manager (TFM). The piece offers a necessary counter-balance to the discussion by looking at the times when taking a calculated risk can reap big rewards for your station.

Don’t Avoid Credit Risk — Manage It

Szabo says a good credit manager knows the difference between managing credit risk and avoiding it. “The goal of monitoring the high-risk customer is to determine — as early in the game as possible and at any given time — who will pay, who cannot pay and who will not pay.” His article goes to explain how stations and their credit managers can make those determinations using the internal and external resources available to them. Here are a few of his recommendations:

Watch For Trouble


As discussed in my April 1 post about spotting clients at risk of bankruptcy, it is essential to frequently monitor an at-risk customer’s order and collection activity and any business changes. This includes watching not only the advertiser’s media buying and payment trends but also such behaviors as pricing its merchandise unusually low, the slow turnover of its inventory, any changes to its reputation in the community, and management changes.

Additionally, Szabo recommends monitoring the company’s EBITDA (earnings before interest, taxes, depreciation and amortization). “EBITDA margins (EBITDA as a percent of sales) can be used to measure profitability. If sales are going up but the EBITDA margin is going down, the company is losing profitability and may be heading toward trouble.”


It’s also important to pay attention to information from staff members and external information sources. “By making a determined effort to open the lines of communication with sales personnel, credit managers can pick up a wealth of information about a customer’s ability and willingness to pay.”

External sources, such as other credit managers, can “bring information to light prior to credit approval or before an existing account is in serious trouble.” Organizations, like BCCA, the media industry’s credit association, are a legal and effective means for “offering credit managers the opportunity to develop a network of colleagues with whom they can exchange policy, procedure and customer information.”

Include Ad Agencies

There are two important reasons to include customer ad agencies among your external sources. First, this allows you to tap into each agency’s knowledge of its clients. “Regular communication not only can uncover a problem looming on the horizon but also can help set the stage for constructive action to mitigate the problem.”

It is also important to ensure that an agency which purchases media on behalf of its client also meets your station’s credit policy requirements. As Szabo notes in his piece, it has become a common practice for media buyers to require a sequential liability position as part of the buy; the agency will not pay the media provider unless and until it has been paid by the advertiser. “This means it’s important to monitor the health and payment practices of both agencies and the advertisers they represent.”

Respond To The Warning Signs

Szabo reminds readers not to forget to reward high-risk customers who are meeting all of their requirements. For example, a client required to pay cash in advance can be moved to paying for a portion of the buy in advance with the balance due within 30 days. “If, after a specified period of time, the customer has consistently adhered to terms and conditions, he or she could be rewarded with more standard terms of payment.”

Szabo also echoes recommendations from other credit professionals concerning the importance of credit and sales working together, especially when at-risk clients are involved. He suggests that one approach would be for credit to involve sales if initial collections efforts (the first two collections calls) have been unsuccessful.

Advertisers who cannot pay should be handled with delicacy and sensitivity. “Indebtedness has a psychological as well as a financial component. Because most debtors would like nothing more than to eliminate the source of shame and stay eligible for new sources of credit, collection efforts that are handled with a sincere attitude of helpfulness will have the most positive outcome.”

When To Use A Collection Agency

Most media companies have a policy outlining when to bring in an outside collection professional. Szabo’s recommendation is to contract with in a third-party collector when multiple joint efforts by credit and sales have not recovered enough money to roll the account back to a 60-day or better status. The use of third-party collection services can be effective in reducing aging loses. Turning over these accounts also helps to lower the opportunity costs that arise when your staff’s time is taken away from more profitable credit and collection efforts.

TFM’s special report on credit and collections also contains tips on “Choosing a Collection Agency” from collections expert Michael Denson, an account executive with BARR Credit Services. A former MFM board member currently serving on our advisory committee and a driving force for many of BCCA’s credit initiatives, Denson’s insights are based upon his many years of experience in working at both media companies and collection agencies.

You can read Denson’s piece, as well as the full text of Szabo’s article in a digital copy of The Financial Manager using the link on our website; it will be available until early May.

Media Finance Focus 2016

Next month also marks when the industry’s collections professionals will come together to participate in BCCA’s track of educational sessions at Media Finance Focus 2016, which will be held in Denver May 23-25. In addition to helping to shape the agenda for this year’s conference, Szabo Associates’ tradition of sponsoring the conference’s opening night event has been very helpful in fostering the relationships that allow the industry’s finance and credit professionals to benefit from one another’s knowledge and experiences.

As its theme “An Avalanche of Knowledge, Networking, and New Ideas” suggests, Media Finance Focus addresses the operational issues of importance to TV station groups and other media enterprises. I hope you will take a few minutes to review our agenda and consider joining us in Denver next month. Unlike an NCCA pool bracket or a high-risk customer, our past years’ attendees can attest this is one instance where you are assured of both a low risk and a high reward.

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.

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