Ad transparency rows add to late payment headache
Withholding payments for more than 90 days is the new norm as brands and agencies squabble over viewability and ad fraud issues, writes Matt Byrne
Queries over ad viewability and fraudulent traffic are being used as another excuse to delay payment to digital firms that need invoices paid quicker so they can invest in new technology and talent.
Working capital for some of the economy’s most exciting media businesses is being squeezed at a time when McKinsey & Company is projecting that global digital media spend will surpass a trillion dollars by 2019.
What is frustrating for those owed money is that the revenues they have earned is needed to make investments in areas of their business that will benefit the very clients who are paying them late.
One of the reasons money is being withheld, increasingly for more than 90 days (the new norm), according to FastPay data, is because agencies and brands are squabbling.
They can spend weeks disputing which ads were actually viewable by the target audience, why ads had been blocked or why they appeared on fraudulent or inappropriate websites.
Only when everyone is happy with the reconciliation process and 1st, 2nd and/or 3rd party viewability reports are checked against performance metrics will an agency ask a brand to pay in full for the campaign.
In the meantime, the agency’s numerous suppliers, such as publishers, adtech firms or small creative agencies are left with a pile of unpaid invoices. This money sits on their balance sheet but cannot be accessed.
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Google and Facebook dominate the digital supply chain and demand payment from adtech vendors or agencies within 30 days, or even up front. If brands and media agencies then delay the transfer of invoice of funds for 90 days or more, these vendors have a problem.
The harsh reality is that payment terms between advertisers and their vendors have slowed by an average of 20 days since 2013. What is worrying is that they may soon have to wait 120 days or even 150 days for invoices to be settled if a way is not found to resolve transparency arguments quicker.
Unfortunately, the awareness of alternative funding methods, such as debt-financing, that enable business investment needs to improve.
Especially as the banks and traditional lenders remain reluctant to back innovative and ambitious media companies because their billing models and what they’re actually selling doesn’t make sense to bankers.
They still overlook key indicators of a company’s financial strength as early-stage cash flows for agency and adtech start-ups and scale-ups disqualify them from antiquated, rigid criteria.
Thus, a paradox emerges: the independent digital firms that are refused credit by the banks are, in turn, expected to loan their services out to large multinationals as if they were banks.
Imagine if you are a DSP or ad network with a unique product and working with different agencies within one media or marketing group.
Savvy businesses combine equity and debt and know it makes sense to have a smart line of credit in place, especially if long payment terms are hurting their business.”
A lack of working capital caused by revenues tied up in slow paid invoices will stop you developing your technology, increasing your inventory sources, or hiring new talent for the good of your clients.
A small creative agency working with a late paying brand is restricted by the number of freelancers it can hire and up front production costs it can afford. Subsequently it is forced into a position where it can only produce a limited amount of content a month because of cost restrictions.
A publisher might turn to developing branded content for its own sites just to earn the money it needs to create higher production values for the brands it works with.
There are plenty of examples of companies coping with late payment by embracing different lending models.
Storytelling studio Nucco Brain, for instance, specialises in visual and audio narratives but appreciates that many of its clients struggle to make a payment before a project starts.
In September, it began to release money from unpaid invoices to improve its own cash flow. It meant it could move from hiring freelancers to recruiting more full-time employees, giving it the confidence to target bigger clients and utilise the extra resources for more ambitious projects.
Of course, savvy businesses combine equity and debt and know it makes sense to have a smart line of credit in place, especially if long payment terms are hurting their business.
They will consider alternative financing and lending options because they appreciate that VC as well as bank funding is drying up. VC funding into ad-tech is down 25% on 2011 highs, according to Pitchbook data.
It is also true that the digital media ecosystem has experienced a proliferation of new start-up entrants that are now competing for scarcer capital in a diminished market.
There are many reasons why payment can be delayed and why funding is hard to come by. Money tied up in unpaid invoices is cash that could and should be working hard to improve a business for its owners and for its clients.
Matt Byrne is UK director of FastPay