10 minute read
Our Mutual Headaches
Credit professionals express deep frustration on several fronts in our unofficial survey. But they also suggest ways to “cure” the problems. BY C. ROBIN SZABO
HILE THERE’S BEEN SOME
Wwondrous changes in the media marketplace in the last 10 years, credit professionals are still plagued with some problems that were around long before we knew about clicks, bots and hashtags.
Recently, I checked in with some managers who enthusiastically “dumped their buckets” as they explained what really drives them crazy. In sharing their frustrations and experiences, they also recommended a long list of possible solutions, included in the sidebar on page 12.
Their comments can be broadly categorized as liability; payment terms; agency inefficiencies; credit information; payments; and inter-organizational issues. What follows is a summary of the major challenges.
LIABILITY BREAKDOWN
“I think our biggest issue of all stems from the dreaded sequential liability,” stated one respondent.
How many years (decades) have we been talking about this? Joint and several terms, which hold both agencies and advertisers liable for payment until media is paid, have always been preferred and recommended position of media companies. Unfortunately (but predictably), agencies have largely embraced the sequential position, which holds them liable only if and when the advertiser pays them.
One industry source, whose buys and agreements are mostly with agencies, has been dealing with the consequences of a lack of signed paperwork outlining liability. An inability to provide evidence of the agreement handicaps her case when litigating against small and midsize agencies that deny liability because they have not been paid by the advertiser.
“The problem happens mostly because the agency has not responded or informed us that it has not been paid by the client,” she explained. “Once we move to collections or litigation, the agency then invokes sequential liability as the reason for nonpayment.”
When managers receive what should be
considered proper paperwork, the issue is far from settled, according to others contacted for this story. Even when a given media organization’s terms and conditions – which include the joint and several clause – are signed by the agency, the agency will often refuse to pay the delinquent account because it has not yet been paid by the advertiser.
“Agencies are citing sequential liability as the industry standard,” said one respondent. “On the other hand, they do not follow the media vendor’s terms for payment and offer terms to the advertiser on our behalf without our knowledge in order to get the business, passing on the risk to media. Agencies can’t have it both ways.”
Adding insult to injury, collections may then contact the advertiser directly, only to learn that the agency has not yet billed the advertiser!
Agencies will sometimes embed their own comments regarding their liability position in small print within sales comments on insertion orders. These never make it to the credit and collections department for review before orders are accepted.
One manager found it interesting that some small and medium agencies provide
insertion orders that actually claim financial responsibility for advertising for their client. But when the account becomes delinquent and collections begins its process, the agency suddenly claims that it has not been paid by the advertiser and that it is covered by sequential liability.
DEBATES ABOUT TERMS
Who gets to dictate payment terms? The organization extending credit should have the right to determine its terms and conditions. However, many customers refuse to see it that way.
“Large agencies are paying later and later,” said one manager. “Payments within 90 days used to be considered the industry standard, but many have pushed that out to 120 days.”
The primary challenge facing one respondent, whose company recently acquired another, is changing the mindset of the purchased company’s established customers. “They were accustomed to paying net 90; however, our policy is net 30,” he said. “As we know, this is one of the hardest behaviors to change with customers in any industry.”
As with liability clauses, agencies will sometimes supplant media payment terms with their own terms in insertion orders, which do not make it to credit and collections prior to acceptance.
There’s also a separate issue related to terms: customers continue to request that media accept credit card payments. “Our policy is to limit credit card payments to cash-in-advance accounts,” said one manager. “From a financial standpoint this is what we want to do, because the fees associated with credit card payments are huge.”
Refusal can lead to friction, both internally and externally. “Sales folks don’t necessarily agree with us because they want to please the clients,” she said. “Some clients threaten to move business if we don’t accept their credit card payments, so it’s a constant struggle.”
COMMUNICATIONS CONFUSION “We are at the mercy of the efficiency of the agency’s billing and collections departments,” said one senior manager. “The large agencies continue to downsize and are unable to keep up with clearing our invoices in a timely manner.” She noted that when checking up on unpaid invoices, agencies will sometimes report that they are discrepant for a couple of
—Anonymous Credit Manager
BUT WAIT: THERE ARE SOLUTIONS
WHILE A CLEAR-CUT CREDIT POLICY AND AGREED-UPON TERMS AND conditions are ideal, that’s not usually possible in the real world of credit and collections. While the respondents to our unscientific survey identified plenty of rough terrain that credit and collections departments must navigate, they also offered up some possible solutions to make the “road” smoother moving forward: 1. Create more rules and regulations with regard to liability. Define the “industry standard” more clearly. 2. Litigators and third-party collectors should immediately push back on agencies that refuse to pay on the basis of sequential liability and demand to see their written client agreements and client contact information. Credit and collections managers usually do not have that information. 3. If getting a signed credit application from the advertiser is not possible, get an agency-of-record letter. That will help resolve problems when an agency will only sign an insertion order. 4. Make sure you get the buyer to sign an insertion order that clearly includes your joint and several liability clause. 5. Offer to help the agency in its collection efforts by calling the advertiser about the delinquent payment. 6. Work to develop relationships whenever possible with agencies. 7. Work harder on smaller accounts; you may have more influence with them. That could help keep your days sales outstanding in line. 8. Push back on customers who attempt to dictate payment terms. Consider suspending services to those who believe they deserve extended terms. 9. Use any opportunity to reach out and emphasize your payment terms with customers. 10. Limit credit card payments to cash-in-advance accounts. 11. Regularly communicate with agencies and account executives on the status of accounts. 12. Impress on upper management the need to have a credit policy as well as terms and conditions that all entities and departments understand and agree to enforce.
months “just because the buyer has not cleared it in their own system.”
Communication is clearly an issue. “Sometimes orders are entered with a smaller commission amount than the agency takes, and sometimes it’s vice versa,” said one respondent. “It’s a lot of work to stay on top of.”
What’s more, some large agencies receive additional commissions related to certain buys based on share, which impacts the amount media is paid. “It varies
from market to market, and keeping up with these is frustrating at best,” said another manager.
His main challenge involves customers that send a payment without providing remittance information. “This usually leads to payment either being misapplied or unapplied, both of which are nuisances,” he said.
Sometimes payments that have nothing to do with accounts receivable show up in AR lockboxes, another time-consuming problem. “This causes my cash team to perform internal reconciliations to ensure that we only account for AR payments received in our monthly cash received reports,” he said.
Disputed invoices, particularly digital invoices, continue to plague managers. “Maybe because it’s still a relatively new field, but advertisers often demand more substantiation for payment,” stated one respondent. “They claim that an order was canceled or that they didn’t get promised results. This is our most difficult type of revenue to collect.”
MISSING APPLICATIONS
It’s a given that a signed agency credit application and signed terms and conditions will minimize exposure. But getting that done is a challenge.
“Most [agencies] refuse to sign and commonly respond that the competition is not asking them to provide this. So credit and collection professionals in this industry are left banging their heads against walls,” said one source.
There’s a related problem: many sales representatives consider the agencies that they work with to be creditworthy, regardless of the advertiser. That’s fine, until the agency has not been paid, and there is no signed credit application on anyone to prove payment liability.
“Often we are unaware of the nonpayment until the process has moved to third-party collection or litigation,” stated one manager.
Another respondent cited problems associated with the digital market. “Many of these companies are startups,” he said, “or they have limited working capital, which makes quality credit decisions a challenge.”
DEPARTMENT DISPUTES
A continuing challenge among credit and collection managers is getting other departments in their media organizations “on the same page” with regard to policy and procedures. Each unit has its own agenda, which of course relates to their paychecks, and everyone has an opinion about the role credit and collections should play.
Some organizations simply do not have a clear credit policy or, even when they do, enforcement is erratic.
“It never ceases to amaze me how stations are totally surprised, month after month, when accounts end up on the collections list,” said a manager, who spoke from a shared services perspective. “It has been our company policy for all local accounts to be sent to collections when outstanding invoices are permitted to age to 120 days.”
Notifications to management are not always successful solutions. “In an effort to make it easier for station management, finance created a report to be saved on the desktops of the general manager and general sales manager,” the manager said.
“All that they need to do is click on it and enter the date to produce a report showing all 90-day and older accounts and the account executive’s name for each,” the manager added. “This gives them the time to meet with the account executive at least 30 days before the account ages to 120 days. The report also includes a notes field, so they can make notes before returning it to me by the 10th of the month.”
The credit manager’s attempts to forestall advanced aging does not stop there. She sends two emails to each station before sending the accounts for collection. Unfortunately, these actions often cause additional problems. “I receive countless email replies asking for more time because they are going to contact the customer for payment, or they want to set up a payment plan,” she said.
To make matters worse, she often does not receive these requests before the account has already been turned over to the third-party collector. “Then the stations refuse to pay collection fees because they didn’t want the account turned over in the first place,” she said. “It’s more than a fulltime job to keep track of all the requests.”
Another respondent concurs. “Account executives [AEs] are concerned that collectors will harm a relationship,” she stated. “We have calls with AEs and sales managers to discuss and come up with a plan of action. Sometimes we fail, and by the time the account is sent for collection, it’s too late to collect.”
Short pays for no given reason are another inter-organizational problem. Said one respondent: “We’ve developed a system where we upload short payments to a dashboard. The AE is notified and asked to give a reason. Then the adjustment goes through an approval process before we credit the balance.”
All of these challenges are made even more significant because of limited collectors on staff. With shared services, there may one collector assigned to four or five markets. “Typically, they work the largest and oldest amounts first,” a respondent said. “That means that smaller balances can fall through the cracks.”
—Anonymous Credit Manager
C. Robin Szabo is president of Szabo Associates Inc., media collection professionals, in Atlanta, GA. He can be contacted at robin@szabo.com or (404) 266-2464.
