Even More Focus on Cash Flow When Economy Turns

The first thing many operators, CEOs, and CFOs, do when they turn on their computers is to check their cash flow. How much money is in the bank, how much came in overnight, how much is in accounts receivable, etc.

At some point, the CEO might start trusting their CFO to handle it for them, but my guess is they’re always aware of the money situation. And the reason is simple. There are only two main ways a business shuts down: the team gives up, or money runs out.

For massive businesses, it’s no big deal. But for a small publisher, managing what comes in and goes out is critical. I have a friend who was in the finance department at one media company, and he’s told me stories about being a day or two away from running out of cash before a big ad deal was finally paid for.

The focus on cash flow becomes even more important when the economy begins to turn. Without realizing it, advertisers might start delaying payment. In their minds, who cares if they’re a few days late paying their bills?

But it creates a waterfall of delays. If the brand is late paying the agency, the agency has to be late paying you, then you are late paying your bills, and it goes on and on. So what might seem like a few days of delay can actually affect many businesses.

If we use my friend’s example above, a few days would be the difference between making payroll. And once you miss payroll, things start to get really complicated.

To be clear, this is already happening. The other day, I was talking with an operator who told me, “I’ve never had a late payment in the entirety of running my business.” But when we opened up his Stripe, I immediately saw that there were late and unpaid invoices.

And so, it’s essential to zero in and focus on your accounts receivable. For the bigger media companies reading here, you’ve got someone doing this all the time. But for the small ones who may be running their AR process, you’ve got to start pestering the delinquent accounts. Every day that goes by is putting your business in a weaker position.

If you don’t want to forget to follow up, sign up for a Boomerang for Gmail account. It’s $50 a year, and you can auto-schedule your emails to people. If they reply, the email will stop sending. Then, turn it off when the bill is paid.

However, there are things you can do to proactively put yourself in a stronger position as the economy begins to turn.

First, consider that when you run an advertising campaign for a partner, you are extending them a line of credit. This is a perfectly regular exercise. However, just like a bank would do a credit check on you before giving you money, it’s important to consider doing the same for a business. Experian offers a solution here. The problem is that it costs money for these checks, so if your ad deals are not large enough, it’s cost prohibitive.

Second, try to get paid upfront. When I was at CoinDesk, most of our ad deals were paid for upfront. We were a smaller company, and our advertisers were smaller, so they were more comfortable with that decision. This won’t work with agencies, but if you’re working brand direct, you might be able to incentivize them to pre-pay. “We’ll give you a 10% bump if you pay upfront.”

Third, be very aware of the agency payment terms. Budweiser’s agency, for example, pays Net 120. Can you imagine going four months without getting paid? You can try to negotiate this, but most companies fail. Why? The bigger the advertiser, the more places they have to spend their money, so a publisher has little choice but to fall in line. If you bring something unique to the table that the agency needs, you might be able to depress the payment terms.

And fourth, consider an accounts receivable-backed line of credit. A financial institution will provide credit up to a certain percentage of your accounts receivable. They’ll do this because, for net 30 or 60 invoices, it’s pretty close to actual money in their eyes, so the risk is low. This helps you because you now have more flexibility.

But there’s still risk here. Let’s say you can borrow against 80% of the AR. You’ve got $1 million outstanding, which means you can borrow $800k. What happens if the AR drops to $600,000 because advertisers don’t pay their bills? Now you’re underwater, and you’ll start racking up interest payments. Debt as a tool becomes debt as a weight around your business’ neck.

We spend a lot of time talking about how to grow media companies. We talk about business models, audience growth, technology, data, and so many interesting (I hope) topics. But when you break it down, selling an ad and getting the money for it are two distinct actions. So it is crucial, especially as the economy begins to weaken, that you stay on top of managing the bills owed to you.

Slight tardiness from your partners might not seem bad, but it can quickly become a problem. So be aware of all your agreements, be a pest, and make sure you can pay your own bills tomorrow.

Thanks for reading. If you have thoughts, hit reply or join the AMO Slack. I hope you have a great weekend!