Extending Too Much Credit
Brand based advertising agency sees opportunity to make the standard fifteen percent commission on media placements.
Before the opportunity is fully vetted and understood agency is placing ads for its clients using the agency’s own credit. As the client media placements grow the amount of media money being paid by the agency to the vendors quickly outstrips media collections from their clients. The agency is virtually insolvent.
Stop advancing funds to purchase client media but instead get paid in advance for all client media buys.
This is a two-pronged approach. First, change company policy to require all media buys to be paid in advance by the client prior to actually booking the media placement. Communicate this new policy clearly and unequivocally to existing and new clients.
Second, candidly approach the vendors to whom money is owed, explain the situation, make payment arrangements and honor those payment commitments.
Importantly, new media payments received in advance are segregated and not used to pay old media bills. This guarantees that all new purchases will be paid on time.
Company credibility is enhanced with both its clients and its vendors as the money flows match the workflows. Vendors are steadily and regularly repaid all outstanding balances leaving them happy as well.
Agency now has media placements as a significant profit center. Money is segregated and earning interest and all media purchases are paid on time. Clients are willing to advance large sums to the agency for media because the clients are confident that their work is being properly processed and managed.
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