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Overview

Standard media industry practices afford media agencies multiple scenarios to manage billing of media to the Client and payment from the media agency to the media vendor.  The two most common scenarios are Estimate Billing and Actual Billing.  Both scenarios have certain advantages, and both have to be carefully managed to allow optimum benefit to the Client.

Estimate Billing

Estimate Billing is just that – media billing based on estimated purchases.  The media agency buyers negotiate schedules on a standard unit of time (i.e. Broadcast Month, etc.) and upon finalization of the negotiation, the buy is then billed to the Client, based on this estimated activity.

As is typical with any media schedule billed on an estimate basis, the movement of the schedule can then become problematic for the Client.  The problem arises from the media systems employed to manage the buy.  In many cases, the buying platform will issue a credit for any spot that is moved for any reason, and then a debit for where the spot has been moved to.  For a single move, the Client is invoiced, credited, and then debited again.  On schedules consisting of thousands of occurrences, the sheer volume of these adjustments is an issue for many Clients.

The primary driver of successful Estimate Billing is an accurate Invoice à Media Buy reconciliation.  A standard invoice reconciliation will reconcile key media data sets to include the following criteria per media property per month per Brand/Demo:

  • Exact time for each unit invoiced
  • Exact cost for each unit invoiced
  • Exact date for each unit invoiced
  • Length for each unit invoiced
  • ISCI/Ad-Id for each unit invoiced

Clients that have their agencies managing across multiple Brands could encounter issues with the reconciliation process if units are allowed to move from one Brand/Demo to another Brand/Demo within the same billing cycle.  In order to prevent any inaccuracies, the media agency must update all buys prior to the reconciliation process.

Estimate Billing - KEY TO SUCCESS

The number one key to a successful Estimated Media Billing process is the design of the process and clearly defined Client expectations.  Expecting no movement within a media schedule is not practical or for that matter, even possible.  Understanding the dynamics associated with schedule movement and setting accountability criteria, i.e. no invoiced items without a corresponding purchased item, is a reasonable expectation and forces the media agency to manage accordingly.

ACTUAL BILLING

A media agency à Client media billing scenario based on Actual Billing will eliminate the ongoing credits and debits associated with schedule movement and characterized by an Estimate Billing process.  Actual Billing should be based on 100% reconciled media invoices back to the agency’s media buys.  Clients are not invoiced until after the agency has reconciled the billing from the vendor and cleared it for payment.As outlined above for Estimate Billing, the key to successful Actual Billing is two-fold:

First is an accurate Invoice à Media Buy reconciliation.  A standard invoice reconciliation will reconcile key media data sets to include the following criteria per media property per month per Brand/Demo:

  • Exact time for each unit invoiced
  • Exact cost for each unit invoiced
  • Exact date for each unit invoiced
  • Length for each unit invoiced
  • ISCI/Ad-Id for each unit invoiced

Second would be a payment schedule that allows enough time for the agency to bill the Client and for the Client to process and pay the agency.  Timing demands in certain media, i.e. Broadcast Network TV in the US, will require that the payment schedule be clearly defined and adhered to at all times.  A process based on Actual Billing will require tight management of payment timing by both Client and agency.A

few more notes about media agency billing & schedule reconciliation

In either billing scenario, the timing requirements needed to conform to local market standards should not impact the agency’s requirement to match 100% of the invoiced items and if needed, take action on any discrepancies.  A discrepancy that occurs on one media property should not impact any other media property’s billing cycle.Some mediums, such as Print, will have unique billing cycles.  In many cases in the US, print is billed mid-month to coincide with when the printed version of the magazine is made available.  These types of unique timing constraints should be built in to the Client’s billing expectations.

In both billing scenarios, Audience Delivery requirements are not factored in to the billing reconciliation process.  In most media, Estimated and Actual Billing is based solely on unit price activity.  The major exception to this rule is online media, where final cost is determined by audience delivery or other performance metrics.  Given the demands associated with properly executing an Actual Billing scenario in the US, the norm is for major media buying agencies to bill on an Estimated Billing basis.  Additionally, many media properties require payment in advance of Audience Delivery data being made available to the marketplace (again, the major exception being online media), therefore, the requirements for reconciliation need to be clearly defined.

So how can Clients protect themselves?

First and foremost, a discrepancy resolution plan should be developed to account for any variances to defined timing expectations by the Client.  The discrepancy plan should determine:

  1. Timeliness of action, i.e. discrepancies to be resolved no later than X days from media property invoice date
  2. Required course of action – credit for media not running as ordered or buyer to update media buy line.  Either action resolves the discrepancy.
  3. If a credit is issued by the media, then agency should update the invoice date to reflect the date in which the discrepancy was resolved – allowing for more precision in determining the media agency’s compliance to the Client defined payment standards.

At MMi, we routinely work with Clients to assure that their finances are being managed appropriately and in accordance with their agency contract.  Our Circle Audit® software platform allows for 100% transactional coverage, providing our Clients with the opportunity to see the following on a monthly basis:

  1. Full reconciliation of media buy à media property invoice
  2. Agency treasury management capabilities and compliance to client defined specs

We would recommend that any client with a significant media expenditure audit the media buying agency’s buy reconciliation processes and compliance to client treasury management expectations on an ongoing basis.  Sampling and projecting media audit results is not appropriate for the media industry – without 100% transactional coverage, there can be no accurate conclusion regarding agency performance.

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For More Information - please contact Steve Smith