For Mitchel Harad, CEO of GetRelevant, the good news is advertiser demand for his company's services is growing rapidly. The bad news is, advertisers and agencies are taking longer to pay their bills than ever before. Harad says, "We spend a godawful amount of time on collections." Although GetRelevant's been in business for more than a year, Harad says timely pay-up has only become a problem over the past four months.
GetRelevant's not alone. Harad says, "These days it's always the chat topic that comes up when I talk to anybody. People say, 'Are these guys paying you?' or 'I had a problem with these guys.'" Christopher Knight CEO of Opt-Influence says, "92.5 days was our average DSO (Days Sales Outstanding) for 2000. In the last month, I've noticed our collections efforts/labor expense has tripled." Phillip Won, who examines dozens of Web publishers' receivables in his acquisitions role internet.com, says, "I've seen companies where collection risk has risen. Whenever we've scrutinized AR, we've definitely identified accounts that are probably bad debt or very, very late. I definitely concur with others that it has been going on."
Some vendors feel the problem is isolated to insolvent dot-coms. Isabel Gonzales, AdFlight's Director of Corporate Marketing says, "Just like any other ad network, we had a small number of customers that were dot-coms who closed their doors. That's just horrible for everyone. We've had a few we had to write off."
Others note that big advertisers can be equal offenders. Harad says, "What's frustrating is it's no different with Internet companies or the Fortune 500." Ted Welch, CEO Cybereps says, "Our slowest payers are the agencies who place ads for some of the largest advertisers. It's an ongoing problem because of the agency/client relationship and the slow nature of agencies and their collections." Kim MacPherson, President Inbox Interactive says, "Most of our Fortune 500 clients will follow our payment terms; but not all do. We often find ourselves waiting 90 days or more for final payment from some of the larger companies. Those seem to get stuck in A/P purgatory!"
Things don't seem to be any easier for European vendors. Sam Michel who's been leading Britain's Chinwag.com since 1996, emailed us last week to describe "the cash flow nightmares we've experienced in the last couple of months." He notes, "The phenomenon hasn't been restricted to dot-coms, some blue chips have required a fair amount of chasing to pay up. Despite the small business legislation in the UK, which to some extent empowers small companies, it is difficult to pursue outstanding debts using this for fear of jeopardising repeat business."
internet.com's Phillip Won expresses the frustration of many industry players when he says, "On the consumer side if you're late you're up s***t's creek. On the corporate side it seems like everybody's late without any penalty."
So, how do you ensure faster payments? MarketingSherpa contacted some of the smartest A/R managers in the online ad world to get their tips for you.Stop Potential No-Pays Before They Order
Obviously the first thing is stop accepting orders from potentially dead-beat clients. But how do you spot them? Harad used to check the F***Advertiser.com site before accepting orders from new clients. Unfortunately that site just went under.
AdFlight's Gonzales says, "We do request credit information if new clients want to be billed -- standard references, bank account numbers, that sort of thing. We also go for clients who are plotting out their media buys on a bit longer basis -- such as three-month stints. That gives you some assurance that they can go beyond the next 30 days in terms of planning. It's a lot more strategic than 'Let's just get this out the door.'"
NetCreations's Accounting Manager Tyler Buhl adds, "We watch to see if a customer breaks out of their normal pattern and suddenly starts spending a lot, or changes their regular payment process, which usually indicates a last-ditch effort before they go belly up. We also pay very close attention to the end client when it comes to broker accounts. If the end mailer is not paying our client, we won't allow that mailer to extend themselves further by coming to us through another broker."Establish Your Payment Terms From the Beginning
Sometimes you're so happy to get the order that you don't want to besmirch a new relationship with hard-nosed talk about payment schedules. However, vendors agree, you gotta bring up accounting-related issues from the very start of a relationship.
Inbox Interactive's MacPherson advises, "I've found it all boils down to initial expectations (of the client and your own company) and what you've disclosed to the client from the beginning. We always make it a point -- even at the proposal stage when they're not yet a bonafide client -- that we expect certain payment arrangements."
Kevin Fitzpatrick, Account Manager at Cyber-NY Interactive agrees, "When entering new relationships it's all about process. Having your clients understand the way your process works, and the corresponding payment schedule is of paramount importance from day one. If your process is set-up correctly to coincide with a favorable billing schedule for both you and the agency, then payment terms are often not an issue."Try to Get Payment Up-Front (Good Luck)
Cash up front is every vendor's dream. And some people actually manage to collect it.
Branding Guru Rob Frankel is probably one of the most famous of them. He says, "Advertisers on FrankelBiz prepay by credit card or company check. If you have a Merchant Account, there's absolutely no reason why you can't do the same. Sure, you'll get the whiners, but you'll also lose a whole lot of bad business. Fact is, I'm not a bank and there's no reason for me to finance anyone else's. As a result, my cash flow is better and bad debt is zero."
Some people only require that new clients pay up-front. Jason McCabe Calacanis, Publisher of the Silicon Alley Reporter says, "We make first-time advertisers pay in advance ... which is standard practice for many media businesses. We even take credit card payment."
Others have had success requesting partial payment up-front. Macpherson says, "We collect at least a significant deposit at the onset of every new project." Chinwag.com's Michel has just changed his payment terms to get more cash up-front. He says, "We're moving towards billing for a job at least partly in advance to avoid some of the nightmares."
However, as Hasad says, "I'd love to get 100% up front but I don't think too many people have that market power." In fact, most vendors requiring upfront payment will run up against a brick wall when it comes to dealing with large ad agencies. For example, if you want to sell online media to Ogilvy, you have to agree to their predetermined payment terms or nothing at all.
So, assuming you're w-a-i-t-i-n-g for payment on at least some accounts, how do you speed things up?Be Pleasant Yet Persistent
Cybereps Welch warns that behaving unpleasantly won't get your bills paid any faster. In fact, if cash flow is a problem, people are more likely to pay vendors they perceive as friends first. He says, "Instead of getting progressively upset about delays and excuses, always treat the customer with respect while asking for specific deadlines and deliverables. Make the person feel important while entrusting them to get you the payment. They will always accept your calls this way, and will probably work hard to get your bill paid before they pay the more angry and aggressive collectors."
Opt-Influence's Knight advises companies to not to wait until a payment is overdue before calling a client's accounting department. He describes his own company's policy, "The payment due date is on the insertion order that is signed by our advertiser. A telephone call to make sure the invoice was received, and then the day after it's late, a call to find out when the payment will be taken care of."
Many companies (especially the really big ones) can be picky about what information needs to be on an incoming invoice. So, it's always worth checking with their A/P department to make sure they have exactly what they need. NetCreation's Buhl says, "We simply stay in constant contact with our customers and make sure they have all the information they need -- clear and correct invoices -- to pay their bills on time. That alone eliminates half the battle, because it leaves them no excuse when it comes time to pay."
Joanna Pineda, Managing Partner for Web development firm Matrix Group International has four useful tips for communicating about payment on a pleasant yet firm tone with clients:
1. Sometimes, invoices get stuck in accounting, where the decision is made to not pay or to slow pay. Your contact may not realize that your account is past due. Get in touch with your contact and let ask for their help in clearing up past due invoices.
2. If you know a company is in trouble, or experiencing cash flow problems, offer terms. It's often better to schedule payments then not receive payment at all.
3. Never make your client afraid to pick up the phone when you call. Don't call only to talk money, and don't let money be the focal point of the relationship.
4. Try this tactic: when talking to your clients, notice that your account is sometimes late in paying. Ask if there are things you can do to speed up payment, e.g., provide more detail on the invoice, send an invoice directly to you or someone else, include account codes in the invoice, etc. This will signal to your client that your account is past due, while giving them cover to fix the problem.
One last idea from Cyber-NY's Fitzpatrick -- bribes can work. He says, "An incentive, such as cost reductions based on the completion of a project within a set time period may get some clients moving faster."Things Will Get Easier in the Future
While bad debt and slow payers will always be part of the normal risks of doing business in any industry, the online marketing industry's current problems may not be as exaggerated in the future.
John Audette, CEO AudetteMedia, has already noticed an improvement. He says, "Things are being paid on time and it almost seems more orderly than during the gold rush days. I think the reason is that we are dealing with survivors who are more professional in their business practices than the smoke and mirror dot-coms that were run by daycare kids during their nap breaks." Rob Frankel agrees that problems previously caused by what he calls, "a general lack of ethics" will disappear as the Web matures from a Wild West atmosphere to mature industry.
Infrastructure may also make a difference. Some agencies accounting departments are still being set up to handle online ad accounts.
Recently ad industry software company BuyMedia launched a new electronic invoicing system for radio stations. The software allows stations to send invoices instantly into most agency media buying software program such as Donvan, SmartPlus and DataTech. Supposedly this will speed payment and reduce errors. MarketingSherpa contacted BuyMedia to see if they were planning on a similar program for the online ad industry anytime soon. No such luck. Marketing Manager Quyen Nguyen says, "BuyMedia is not planning to expand into online media in the near future."
However, if the online ad industry keeps growing at its current pace, there's no doubt somebody will try to make a little cash by selling a solution to slow-bill-paying problems. Companies mentioned in this report: