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Cash conservation, cash flow and agency compensation. How to calibrate?

In recent times, the financial organizations of many publicly traded companies are focusing on working capital initiatives to drive cash flow from operations, in specific from indirect procurement and marketing spend.

It’s a prevalent judgement that marketing agencies take advantage of the buying process to delay paying merchants, even if the brand had already paid.

 

The stats show that on average, 46% of media is billed prior to media being delivered. Production is commonly billed prior to services being rendered; 50% - 75% of the project is paid upon award.

Production Payments
Billing Prior to Services Rendered
Timing of Billing

The holding of marketers' cash (no less than 46% of media and 50% of production expenditure) for +180 days, as trends show, negatively affects the marketers' working capital and cash flow. Foremost, It could conservatively be considered a source of agency revenue generation.

How advantageous is the cashflow position with your agencies?

The most common solution has been extended supplier’s payment terms. Yet, the one-size-fits-all approach of adjusting payment terms may have negative consequences as well, such as strained relationships with vendors, reduction in flexibility. There’re arguments pointing out to higher supply prices. Working closely with our clients, we found that the discussion of cash flow needs to incorporate the analysis of the timing of billing. We found that to increase cash flow and cash conservation, monthly monitoring of billings is a must.

 

Consistent control. Long-term profitability

 

To systematically address cash flow issues, we developed DG2-IPS: a software-based solution to consistently verify compliance and accuracy of all agency invoices before payment.

Schedule a demo and start maximizing every dollar.

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Celeste Fiorenza

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DG2's Managing Director. Leads the financial & media performance assessments practice globally. Experienced in partnering with leading companies across industries to transform their dominion over marketing spend, and turning inefficiencies into reinvestment opportunities, leveraging cutting edge digital and analytics capabilities to help them mitigate risks and gain consensus.

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