In these exclusive excerpts from our IPA online Commercial Certificate, we look at the role of finance within all components of a media agency, from pitching for new business to booking media.
Client approval process
Prior to committing any plans with media owners an agency should ensure that proper approval has been provided by the client. The exact form in which approval will be provided will vary by client and should be set out in the contract with them.
When seeking approval from a client the agency should clearly set out the cost of the activity for which they are seeking approval, covering in detail the net cost of media, the agency’s fees, associated charges including ASBOF, BASBOF, production etc. and VAT as applicable.
All documentation relating to the client approval process should be securely retained for as long as the finance team and client require it. Beyond this the approval documentation forms part of the audit trail which the client may seek to review as part of a contract compliance audit that could go back two years or more.
Why does this matter?
A client’s formal approval of media plans is the agency’s legal authority to make contracts and reservations for space, time and other facilities with third parties on their behalf. Without this formal approval, no commitments which expose the agency to third parties should be made. By clearly setting out the cost of the activity at the approval stage you can ensure that all potential costs are adequately covered avoiding any disputes later on.
Regardless of how far forward media is bought or when the client is due to be invoiced, an agency should always aim to book the media they have committed with contractors onto their media system as immediately as possible. Each agency will have specific guidance for when and how to register these commitments.
Late bookings are typically monitored by finance and persistent offenders may be spoken to. When booking onto the media system, check that the spend corresponds with client approvals, ensuring, where applicable, that the PO number is recorded.
As working capital (the timing between collecting payment of media from clients and paying media owners) is critical to an agency’s financial health, subject to individual contractual terms, agencies will aim to invoice clients as promptly as possible. In extreme circumstances, late bookings stop an agency from invoicing the client on a timely basis, not only impacting upon its working capital but also diminishing its reputation for professionalism with the client, who is reliant upon prompt and accurate invoicing to control their media budget.
Ensuring everything gets billed out
The process for client set ups and the booking of media on the media system is the agency’s basis for ensuring the completeness and accuracy of its client invoicing. However, there are aspects of an agency’s work that need charging to clients which fall outside of this standard process for which you may need to assist, for example:
Performance related fees (PRFs) or other client bonuses.
Other agreed client charges, for example agreed research, travel or accommodation expenses.
Ad hoc projects performed by specialist divisions outside of the standard scope of the planning and buying agreement.
These are typically the responsibility of Account Directors to agree with the client, obtaining the necessary approvals and POs as applicable. Once agreed, they should liaise with finance to agree the best means of invoicing out to the client.
On certain clients, where different commission scales apply subject to spend levels, periodically commission reconciliations may be necessary. Finance will prepare these but may need your input.
Dealing with overdue client debts
Once approved media has been properly booked, finance is responsible for invoicing and collecting payment from the client. In most cases you will not need to get involved, as most clients hopefully settle their invoices promptly.
Where an invoice becomes overdue, finance will alert Account Directors via overdue debt reports. The Account Director and finance should meet to discuss the problem together and agree a course of action, which should include such steps as surcharging overdue debt, putting the account on freeze for future bookings, etc.
As already noted, working capital is critical to an agency’s financial health. A one month delay in payment by the client, which results in the agency paying media owners in advance of being paid itself, results in a working capital deficit, the interest cost of which may wipe out any profit margin on the work provided.
As debts grow older, not only does it cost even more, but as time moves on it becomes more and more difficult to address the underlying problem at the client’s end that are the cause of non-payment. Rather than leaving the issue with finance in the hope it will get resolved, it is in everyone’s interest to address the problem collectively to avoid even further difficulties and potentially debt write-offs at a later date.
Just as with a creative agency, timesheets should normally be completed by all client-facing personnel within a media agency. Timesheet data helps when monitoring the resources required to service a client’s business compared to the fees earned and, as such, is the basis for fee negotiations. Clients may also routinely exercise their contractual rights to ensure that their agency complies with these terms by auditing timesheet records. They are also used to ensure that people are working within the guidelines of The Working Time Directive.
The Golden Rules
In summary, here are seven golden rules to help facilitate the smooth working with clients:
- Understand the terms on which you do business.
- Ensure all client commitments are covered by credit insurance or prepaid.
- Comply with your client’s approval processes and do not commit without approval/POs, as required.
- Book all media commitments on your media system as early as possible.
- Respond to finance department queries promptly and accurately.
- Ensure you charge for everything you do.
- Submit timesheets in accordance with policy and on a timely basis.
The IPA Online Commercial Certificate is available at any time during the year to complete until 31 December, 2017. It has been created to give future industry leaders an education in agency finance, to help with those important client conversations and to build the understanding needed to create quality work that delivers a profit. Read more here.