Paying Your Agency’s Digital Media Billing Too Soon?

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Despite its basis in technology and automation, reconciliation and payment timetables for digital media advertising are notoriously slow relative to other channels.  Most digital media is bought and sold based on “actual” delivery against some metric (audience impressions, clicks, views, interactions, etc.).  It is the reconciliation and agreement on this delivery between seller and buyer (or buyer’s agency in most cases) which is often cited as driving the additional time in the digital media billing process.

Whatever the reason, many months often elapse between when media runs and when it is paid for.  What we often see, however, is that despite this significant lag in reconciliation and payment between agency and vendor, there is no corresponding adjustment in billing or payment terms between the agency and its Client.  In many cases advertisers are invoiced by their agencies (and Clients pay these invoices) weeks or even months prior to the agency’s actual remittance of said funds to the digital media vendors.  Does your organization fall within this category?

75%+ of Agency Billing to Client Generated In (or Immediately Following) “Month of Service”

According to studies conducted in the latter half of 2013 by both the Association of National Advertisers (ANA) and the American Association of Advertising Agencies (4As), most Clients are invoiced by their agencies for media billing – including digital media – prior to or at the beginning of the actual month in which the media is to run.  Many of the remainder are invoiced at the beginning of the following month.

Both the ANA and the 4As found in their survey responses that more than half of all Clients were being billed at the beginning of the month of service or sooner (54% in the 4As study and 56% in the ANA study).  An additional 21% (4As study) and 28% (ANA study), were being invoiced at the end of the month of service (or at the beginning of the following month).

Most Advertisers Pay Digital Media Agency Invoices Within 45 Days

To fully understand this issue, it’s important to consider not only when Clients are being invoiced, but when they are paying their agencies – and finally, when are their agencies paying the media vendors.The same 2013 4As and ANA studies referenced above also asked respondents to indicate how quickly Clients paid their media invoices.  The findings for digital media were insightful.

Interestingly, unlike the reported information for bill-to-Client dates, the information for payment terms is more disparate between the two studies, which were conducted within a few months of one another.  According to the 4As study, 75% of Clients pay their digital media invoices within 30 days (and 86% pay within 45 days).  Conversely, in the ANA study, only 19% of advertisers pay within 30 days; still, 59% pay within 45 days, and 80% pay within 60 days.In spite of the disparity between the findings in the two surveys, it can be concluded that:

1. More than half of digital media Clients were being invoiced at the beginning of (or prior to) the month of service for their digital media buys (and a whopping 75%+ within or immediately following the “month of service”).
2. A considerable number of advertisers pay these invoices within 30 days. Somewhere between 59% and 86% of digital media Clients were paying these invoices within 45 days, and 80%+ pay within 60 days.

So, the majority of Clients covered in the surveys were being invoiced prior to or in the month of service, and well over half were paying their invoices within 45 days.

Agency Payment to Digital Vendors is Very Often In Excess of 90 Days

When do media agencies typically reconcile and pay media vendors in digital media?  This is one of the questions which MMi regularly endeavors to answer for Clients in our Billing Reconciliation assignments, and the answer in digital media is often well in excess of 90 days.

‍According to the most recent “Standard Terms and Conditions for Internet Advertising,” (which incidentally were last updated in February, 2010) media vendors are to send the initial invoice “upon completion of the first month’s delivery, or within 30 days of completion of the IO, whichever is earlier.”  The T&C’s then go on to say that “All invoices (other than corrections of previously provided invoices) pursuant to the IO will be sent within 90 days of delivery of all Deliverables”.  Agencies are then to “make payment 30 days from its receipt of invoice, or as otherwise stated in a payment schedule set forth on the IO.

”The bottom line here is that – even within the standard IAB Terms and Conditions – there is a great deal of “wiggle room” with respect to how quickly invoices will be generated, reconciled and paid.Because invoices are generated based on “actual” delivery, and because there are frequently discrepancies in the delivery reflected on the vendor invoices – which must be resolved prior to payment, it is not at all uncommon to observe digital invoices paid well in excess of 90 days after the activity (120, 150, even 180+ days).

To recap, the surveys indicate that the vast majority of advertisers are invoiced for their digital media in or immediately following the month in which it runs.  Most pay these invoices within 45 days (and the overwhelming majority within 60 days).  However, in a great many cases – and for a variety of reasons – agencies often do not pass these payments along to vendors until in excess of 90 days.

In a “worst case” scenario, if an advertiser is being invoiced at the beginning of the month of service for a digital media buy, and is paying that invoice within 30 days, that advertiser’s agency may be holding those funds for 60+ days prior to paying them out to the vendor.

Implication for Advertisers

The questions raised by all of this, which your company should be asking:

1. When are you invoiced by your agency for digital media buys?
2. How quickly does your company pay said digital media billing?
3. When is your agency invoiced by vendors for the same buys?
4. At what point does your agency pay its invoices to the media vendors?
5. How much time elapses between your payment to the agency and your agency’s payment to the vendor(s)?

Items #1 and #2 should be simple enough to answer.  Someone in your organization has access to this information.  Items #3 and #4 are easily answered by a media audit including a reconciliation of your agency’s billing.  This will arm you with the information you require to answer the crucial question #5.

Granted, in today’s economy the common interest income on these funds may not be substantive.  On the other hand, when calculated against your company’s internal rate of return (or, say, your agency’s), this dollar amount is more likely to grab your attention.

Until the reconciliation and payment timelines in digital media can be accelerated so that they are comparable with other channels, advertisers would do well to pay close attention to their payment practices – and those of their agency – for digital media initiatives.

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