“Isn’t there a better or different way?” 95% of the time there is. Sometimes it’s easy to execute, sometimes not. For most National and Global brands, Advertising investment – and specifically, paid media – is one of the largest line items on the balance sheet. Managing the flow of this cash through the agency to the media partners, and the timing of this, makes a difference to an organization’s bottom line. One of the most impactful shifts a company can make is converting media agency billing from Estimated to Reconciled. Below are the benefits and considerations to make this change, and guidelines for a conversation with agency partners regarding a transition.

The Traditional Way – Estimated Media Billing

Traditionally, agencies have billed clients in the month in which advertising runs (or is consumer-facing in the case of print), either the beginning, middle, or end of that month depending on the agreement. The bills are based on Estimated, which means they reflect the activity and dollar amount the media buyers have Ordered in their system on the client’s behalf as of the billing date. The client has 30 or 60 days to pay the agency bill, and the funds are then available at the agency to pay the media bills once the media partner invoices are reconciled. For example, a client might be billed on 3/1 for media ordered for March and will pay by 4/1 so that the partner has cash on hand to pay media properties as the invoices arrive at the agency in early April. Adjustments based on the actual media invoices are expected to be very minor and pushed through the following month or two to the client. The challenges with this approach are twofold:

  1. Media does not run as originally ordered. Network Sports schedules change and require additional units to deliver guarantees. Local TV and Radio commercials are bumped out or upgraded based on supply and demand or impacted by political advertising. Digital activity is pay-upon-audience-delivery and may fall very short of order, or at minimum generate numerous debits and credits as optimizations across vendors and placements take place. As with many things in the media supply chain, the process is set up for the past and not the present or the look to the future.
  2. Many media vendors are not paid until 60+ days. Invoices for March media arrive in early April but do not get paid until June or later. There are many explanations for this lag time but in a nutshell generally three reasons: lag in media buyer stewardship and maintenance, media buying company shared financial services managing their own cash flow, and media outlet attention to correct and timely invoices.

All of these factors conspire to have a company’s marketing dollars sitting in the agency’s accounts longer than it should. In general, a finance team would prefer having use of those funds as long as possible. 

The Alternative Way – Reconciled Media Billing

Like “just in time” inventory management, media bills can be paid “just in time”. The agency does not bill the client until the media invoice has been fully reconciled and approved for payment. The advertiser then expedites payment to the media buying partner for reconciled invoices to be paid to the media property in a timely manner. In a world of Electronic Digital Invoicing (EDI), paperless management of invoicing can be more accurate, seamless, and timely. Company cash goes out the door based on only actual validated activity, and in time to pay that bill. No float. No debits, credits, and media billing adjustments dragging out months or across years. Systematic and automated financial management protects the advertiser against the turnover common during the “Great Resignation” as well as allows optimization of talent in more strategic areas. Sounds good. However, to be fair and balanced, think through how long the media supply chain operates and the Benefits and Considerations of the Reconciled Media Billing paradigm.

Benefits of Reconciled Media Billing

  • Advertisers hold their cash longer and minimize outside use and access to funds.
  • Stronger management of fiscal budgets to align with consumer-facing communications impact.
  • No paying in advance and tying up cash that might ultimately be credited back (e.g. Digital under-delivery, Local TV/Radio preemptions, cashback for Syndication audience shortfalls).
  • Media buying partners are incentivized to reconcile media invoices quickly in order to have the cash to pay their vendors.
  • Minimal to No adjustment billing.

Considerations for Reconciled Media Billing

  • Advertisers must be set up internally (systems and staffing) to expedite payments to ensure agency partners have the cash to pay the vendors on a timely basis (i.e. 5- or 10-day turnaround versus 60-day payment terms). Deficient payments can negatively impact both advertiser and agency credibility with media partners.
  • Stronger use of systems and technology for managing media investments (e.g. EDI).
  • More complicated accruals as larger agency bills arrive months after activity aired.
  • Typically, more frequent billing/payment runs (bi-weekly versus monthly, for example).
  • Agency alignment for initial operational set-up of custom workflows. 

If reconciled media billing would be beneficial and the initial operational set-up can be achieved, where do companies and clients start? Have an open and solutions-oriented conversation with agency partners to collaborate. Shifting to reconciled media billing does not happen overnight. However, with advanced planning and a shared positive mindset, clients and agencies can be successful. A media audit can validate if there are lag times of funds and can support the operational transition to reconciled media billing. In addition, the most agreeable solution may be a hybrid. Estimated billing for Broadcast Networks that demand payment within 30 days might be acceptable. Reconciled billing for Cable/Syndication and Digital is recommended where it may take agency and media partners extended months to reconcile, and the need for managed cash flow can be stronger.

Company working media dollars are large expenses and warrant ongoing consideration to ensure they are being managed the “best way” for organizations.

For more information on making financial management part of your agency contract, please also see our article “Top 10 Media Performance Criteria for Agency Contracts”.