The Increasing Importance of Payment Terms – A Study by AdMonsters + 614 Group
Ask anyone and there’s no argument that the payment terms of yesteryear no longer work for businesses in our digital age. The industry with the most egregious imbalance of payment terms continues to be the advertising industry. We’ve been dead set in bringing awareness to this issue, so I was thrilled to share my thoughts with The 614 Group and AdMonsters in a recent study. The study highlights the driving factors and motivations of both sides of the transactional relationships.
The Problem on the Demand Side:
According to the information gathered in the interviews, marketplaces do not have concrete, clear views concerning delayed payments. Interestingly, marketplaces are experiencing similar struggles as the supply side, where extended payment terms on the buy side result in revenue stressors similar to those expressed by publishers. Consequently, even though marketplaces are aware that shorter payment periods would benefit publishers, they also rely on the available capital for their own growth. It’s clear that as long as this payment model is implemented at the advertiser level, each successive level of the value chain will be forced to operate on a similar model. According to this study, the most realistic solution to this “catch-22” will come from a third-party financing service.
The Problem on the Publishing Side:
It’s no secret that publishers are affected by payment schedules, with Net30, Net60, and even Net90 payment schedules limiting the available capital needed to reinvest and grow their businesses. The results of the survey really drive home the point that the growth of publishers of all sizes is stifled by these archaic payment terms. Vice President of Revenue Operations at Mashable, Brie Manakul, expressed the importance of shorter payment terms:
“It is so important that people honor their payment terms to ensure we get that money back in house to reinvest it back into the growth of the company. Publishers are unable to scale their businesses at the speed that their audience is growing because their cash flow is limited, preventing them from reinvesting their earned revenue”.
Arguably the most valuable insight for marketplaces lies in the strong role payment terms play in assessing marketplace partners, as expressed by Brie. She also emphasizes the importance and need for third-party financing options, with the unwavering belief that publishers will have no other option than to turn to alternate financing options to support their growth goals.
These antiquated payment terms affect the future of the entire value chain, not just publishers. At Payability we strongly believe that restoring the balance to the digital marketplace supply chain is not only an organic progression in how payments are processed but also serves as a mutually beneficial solution for all parties involved.
To read the full 614 Group and admonster study complete with survey results and interviews, make sure to head over to the admonster’s blog.