While advertisers’ balance sheets are benefiting from extended payment terms, they might not realize they’re hurting the entire supply chain in the process.
According to Kingston Smith, 91 percent of creative suppliers in the United Kingdom have been pressured to extend payment terms against their better judgment. These suppliers can’t just say no, either. In fact, only 5 percent of agencies refused to extend payment terms, even though 65 percent of those surveyed expressed dissatisfaction with the payment term extensions because they believed the supply chain will be adversely affected.
But just because extended payment terms are the status quo for many advertisers, it doesn’t mean that things can’t change. There are plenty of advertisers to choose from, and publishers have options to make payment terms work for their business.
With regular revenues, publishers gain the working capital needed to invest into areas ranging from content development to platform improvement. Strong cash flows pave the way for publishers to grow their audience and content, and when suppliers’ content is strong and their audience is eager to read, the whole supply chain sees benefits.
Why Businesses Need Healthy Suppliers
Although some large companies sitting at the top of the supply chain might not realize it, their success is intimately connected with that of their suppliers. Here’s why suppliers are so crucial to the equation:
Small, up-and-coming publishers have the audience that advertisers want — a dedicated following in a niche. While these audiences don’t have as wide a reach as those of larger suppliers, the members of the audience are often more invested and more influential than their mass-market counterparts. Strategically tapping into niches — especially those with strong growth potential — allows businesses to flourish in the long run alongside their supplier partners, rather than in the short term at the expense of those suppliers.
Small suppliers represent the future of the industry, and cash flow is the key to their longevity. As more and more industries support entrepreneurial culture, the adtech industry continues to lag behind. Even governments are becoming savvy to the advantages of supporting startups, so why can’t a burgeoning industry like adtech do the same?
Although advertisers might be happy with hoarding cash, the industry’s ecosystem can’t support the current model for long. Extended payment terms cause cash to build up on one side of the equation. If suppliers are left high and dry for too long, money will start drying up for all parties involved. Cash flowing freely creates a stable, innovative ecosystem — one in which new ideas can spread and the industry reach can expand.
The more publishers grow their audience, the larger the advertiser’s reach. If poor payment terms prevent publishers’ growth, advertisers will eventually lose their footing among the publication’s readers. Readers want new, fresh material each time they visit the site — the development of which costs publishers money — so it’s vital that publishers have the cash on hand to continuously grow and improve.
How Can Adtech Create a Healthy Supply Chain?
The entire adtech industry is at risk if advertising giants fail to recognize the impact of their payment terms on the supply chain. Here’s how they can turn things around:
Provide Faster Payment Terms or Third Party Options
A healthy supply chain requires financial stability from top to bottom. Businesses that work alongside their suppliers to determine fair, dependable payment term options —not terms that favor one party — will see better long-term results than those who do not, and they’ll attract other quality small suppliers, too.
Treat Suppliers Like Customers
No business wants its customers to feel resentful. Companies must forge strong relationships with their suppliers to ensure suppliers feel respected. Companies’ unrealistic or unfair demands on suppliers encourage suppliers to seek replacement clients. Responding to suppliers’ needs as if they were customers makes for happy, sustainable partnerships.
Celebrate Small Businesses
Small businesses provide 55 percent of all U.S. jobs, and their role in the ecosystem grows every day. When small businesses grow, the entire supply chain benefits. YouTube has realized this and does an excellent job of championing its creators to the benefit of everyone involved.
What Comes Next?
Some governments — including that of the United Kingdom — have already enacted legislation to curb the trend of extended payment terms, but legislation alone is not enough.
It’s up to advertisers to recognize that a healthy supply chain depends on looking beyond their own immediate financial interests. Only then can the supply chain continue to support a growing industry.
A healthy supply chain requires that advertisers recognize their need for publishers — and that publishers need faster payment terms.