Some of the measures being undertaken to speed up advertising payments by agencies to stations, such as automated processes and shared services structures, can actually be slowing them down. Here are suggestions on solving the problem.
Unblocking The Ad Payment ‘Traffic Jam’
“A ‘traffic jam’ is occurring, as agencies pay more slowly. And the reasons involve both advertisers and media suppliers.”
That was the top line conclusion of Janet Stilson, editor of MFM’s TFM — The Financial Manager magazine, after speaking with advertising and media industry executives for a special report on credit and collections.
Stilson, who has worked in the industry as a media analyst and journalist for the better part of the last 30 years, aptly titled her feature story “Moving Out of SloMo.” Her objective was to identify the factors contributing to advertising payment delays along with what TV stations and other media providers can do to reverse the trend.
One of her more insightful discoveries was that some of the measures being undertaken to speed things up, such as automated processes and shared services structures, can actually be slowing them down.
As Pam D’Elia, director of credit and collections for CoxReps, explained to Stilson, the shift to agency holding companies has removed the accounts payable function from the agency that places a media buy. Now that function typically resides in a centralized purchasing organization. As is usual when such consolidation or centralization takes place, the same amount of work is allocated to a smaller sized staff.
“There’s a volume that there never was before,” D’Elia says. “And we’re talking about human beings. As fast as someone can work, and as good as technology has become, you still have the human factor thrown in.”
Slowdowns that can be attributed to automated processing are often the result of human errors when the orders are placed. “Somewhere between 90% and 98% of all media invoices have at least one discrepancy on them — whether it’s because the buyer failed to communicate the information to us or we failed, for whatever reason,” Stilson was told by another media company official.
The Agencies’ Dilemma
In addition, there is a payment policy trend among advertisers that is slowing payments to ad agencies and media providers alike. A report issued last year by Association of National Advertisers (ANA) showed that 43% of all the respondents at advertising clients said they had extended payment terms for a series of marketing services that included agency fees, research, media, production and talent payments.
This slowdown, in turn, backs up the agency’s payments to media providers, since agencies’ treasury departments typically wait to make sure that everything on the invoice has been paid for by the advertiser client before writing a check.
In speaking about the ANA report, the organization’s president, Bob Liodice, explains that in many instances, those companies extending terms aren’t singling out agencies in particular, but extending terms for all kinds of suppliers. Liodice also said we should expect the trend to continue. He told Stilson that, as part of the survey, “We asked our members if there would be a greater degree of terms extensions in 2014, and the answer was ‘yes.’ That’s becoming the wave.”
While there are concerns that these polices could cause suppliers like boutique agency shops to go out of business, Liodice also said, “several large marketers” that have extended terms said they sometimes deal with smaller or startup companies differently (more leniently) when setting their particular terms.
Tom Finneran, EVP of the American Association of Advertising Agencies (4A’s) described the trend of payment extensions as the “800-pound dynamic.” In some cases, he contends, “it’s an abuse of big clients’ negotiating power.”
Finneran said he recommends agencies examine how their pricing decisions take into account the delayed payment polices of a prospective client. “My advice to agency members is, ‘You must consider a marketer’s payment terms when you price your proposals.’ If one marketer pays in 45 days and another marketer pays in 120 days, to sell them the same product at the same price doesn’t seem logical.”
His suggestion prompted Stilson to ask media providers if that solution would work in their situation. Stilson said: “Some executives interviewed for this article believe this tactic wouldn’t work, because agencies are too powerful and the competition for their dollars is so stiff.
“Although one source suggested it might make sense for accounting departments to talk with sales people about adjusting cost per thousand (CPM) or impression rates when dealing with payment laggards during major negotiations for long-term deals — such as the upfront marketplace in the television and online worlds.”
Accepting Credit Payments Can Help
Some of the media providers Stilson spoke with for her story said offering a credit card payment solution can shave “about two to four weeks” off the amount of time it takes to get paid. In fact, at least 50% of media entities currently accept credit card payments, according to Stephen Cohen, SVP at Boost Payment Solutions, which helps companies migrate from paper checks to electronic alternatives.
“This is the way that a lot of agencies want to pay their vendors,” Cohen advised. “In some cases they may give preferred vendor status, and they may be willing to pay quicker with a payment that will typically fund the next day and provide enhanced remittance reports that can automate the reconciliation of the transaction for the vendor.”
Accepting credit cards adds additional costs for the media provider, which is something that the company needs to factor in before going down that path. Certainly, as outlined in an earlier Front Office column, there are ways to cut those costs. Raycom Media, for example, now provides more data about its credit card clients and thus qualifies for lower processing rates than they’d paid in the past.
However, even the lowest rates don’t compute for some media providers. One source for Stilson’s story said his company was paying $100,000 annually in credit card fees, adding the only way he could see the investment paying off would be if it contributed to making more sales which, unfortunately, it didn’t.
The Human Factor
Another step TV stations and others can take toward unblocking the ad payment traffic jam involves reducing that 90%-98% discrepancy rate quoted above. As one of Stilson’s sources points out, “We’re always going to have discrepancies where [commercials] get preempted; we’re always going to have discrepancies with technical issues. But mechanical problems, like not putting in a client product or estimate number where it should be, is the kind of error that can be avoided by agencies as well as media companies.”
Ideas for Radiating Success
MFM’s BCCA subsidiary, the media industry’s credit association, will be exploring additional ideas for unblocking the ad payment traffic jam at Media Finance Focus 2014, our 54th Annual Conference, which will be held in Miami next month (May 19-21). Each year our BCCA Committee puts together a series of sessions that the industry’s credit and collections personnel consistently rank as well worth the cost.
This year’s track will address the latest trends in credit policies, initiatives for streamlining the financial management of integrated advertising campaigns, and tips from both agencies and peers on way to improve the collections process. We’ll also be reviewing the results from our first test markets for EMCAPP – the Electronic Media Credit Application initiative that can also help you streamline the credit process for getting ads on the air.
Additional information about Media Finance Focus 2014 and an online registration form may be found on MFM’s website. This year’s theme of “Radiate Success” refers to more than our Sunshine State location. It’s also a nod to an agenda with more than175 industry experts covering a range of topics relevant to broadcasters and other media providers.
Our objective is to illuminate the potential roadblocks and shine a light on clear paths that will allow you drive your organization to success despite the challenges of a rapidly changing industry.
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.