February 19, 2001
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MarketingtoWebMarketers From MarketingSherpa.com
======================= Feb 19, 2001 - Vol. II, Issue 5
Please forward *without* cutting.
Subscribe free at http://www.MarketingtoWebMarketers.com
SPECIAL REPORT: Online Marketing Clients are Paying Slower
These Days -- Here's What You Can Do to Solve It
1) Slow Payment Has Gotten Much Worse Recently
2) Stop Potential No-Pays Before They Order
3) Establish Your Payment Terms From the Beginning
4) Try to Get Payment Up-Front (Good Luck)
5) Be Pleasant Yet Persistent
6) Things Will Get Easier in the Future
5) Companies mentioned in this report
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* Introduction: Slow-Payment Has Gotten Worse Recently *
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?
MarketingtoWebMarketers 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 *
Sponsor: Office.com
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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. MarketingtoWebMarketers 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 *
http://www.adflight.com
http://www.audettemedia.com
http://www.buymedia.com
http://www.chinwag.com
http://www.cyber-ny.com
http://www.frankelbiz.com
http://www.getrelevant.com
http://www.inboxinteractive.com
http://www.netcreations.com
http://www.opt-influence.com
http://www.siliconalleyreporter.com
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