In a high growth industry like digital advertising, access to capital is essential to successful growth and profitability. A 2013 industry report analyzed the payment practices and average length of payment terms in the digital advertising industry; the results illustrate that delayed payment is something digital ad agencies must focus on in 2014 to improve cash flow, accelerate growth, and make the investments they need to remain competitive in an quickly growing industry.
The data in the report showed that in the digital advertising industry:
- 6% of invoices are paid in under 30 days
- 94% of invoices take over 30 days to be paid
- 62% of invoices take over 60 days to be paid
Extended payment terms (average of net 60) are the norm for the average company in this industry but even still, with 62% of customers paying in more than 60 days, there is room for much needed improvement to give companies the capital they need to succeed. Long payment terms are standard, but companies still need to get paid on time!
In order for online advertising agencies to shorten receivables cycles, they need to focus on optimized accounts receivable management and integrate accounts receivable best practices into their daily operations. Some of these best practices include:
- Creating and utilizing a credit policy.
- Sending accurate invoices to customers quickly.
- Sending regular account statements to customers and sales teams.
- Developing and measuring accounts receivable management KPI’s such as days sales outstanding, average days to pay, percent of bad debt, etc.
- Keeping documentation of collection activities and communications.
- Get rid of time consuming manual processes and automate redundant daily accounts receivable tasks.
For best practices like the above and detailed explanations of how to implement them in your digital advertising agency, download our free guide to reducing outstanding accounts receivable here.