We spend a lot of time discussing what we can do to improve our station’s or company’s operating margins.Optimizing the results from sales through sound credit and collection policies and practices is one way to do it.

The Broadcast Cable Credit Association, a subsidiary of BCFM, recently completed its 2006-2007 Survey of Credit & Collections Policies. I wanted to share a couple of the key findings in hopes it might improve your performance in these areas.

Who’s in Charge?

With many broadcasting and cable outlets sharing business management functions, it’s not surprising to find that fewer stations or cable systems have on-site credit and collections managers.

A remarkable number of radio and TV stations continue to report that their business mangers are responsible for the credit and collections function. 

Credit and collections are integrally related to a company’s financial performance.

Station groups and cable MSOs that have dedicated credit and collections personnel can devote more time and expertise to this essential function for ad-supported media.

If economies of scale don’t permit locally dedicated resources, adopting a regional or centralized approach could yield better results in responding to the time-sensitive nature of such activities as credit approvals, invoicing, addressing discrepancies and making collections calls. 

Credit Policies

In this Sarbanes-Oxley era with its focus on internal controls, every media company should have a written credit policy. So I am always amazed when a score of less than 100% appears in our bi-annual surveys.

Although the number of respondents who report that they don’t have a written credit policy continues to be very low, it still serves as a red flag for the BCCA Committee.

Situations in which a company doesn’t have a written policy, or those in which members of the ad sales or credit and collections units aren’t aware of the policy, are simply unacceptable.

I shudder to think what the company’s auditors would say if they knew that.

In addition, credit polices and applications should be reviewed regularly.

This allows the company or station to address changes in the market and ensures compliance with any changes in state or federal regulations. We are seeing some movement in this direction, but there’s room for improvement.     

Electronic Invoicing

Electronic invoicing represents another area where we have been collaborating with the ad sales and media buying communities and one in which we are making headway.

More than 90% of all respondents report using electronic invoicing. Moreover, 60% of those who haven’t converted to e-billing plan to make the switch within the next two years. 

Over two-thirds of our survey respondents report that they haven’t been paid any faster since moving to electronic invoicing.

However, e-invoicing should lessen the amount of time required for processing invoices. One would expect that it would also shorten the span of time between airing the last spot in a campaign and getting paid.

Since, as the old saying goes, “time is money,” we need to investigate this situation to determine what we can do to speed up the payment process.   

The majority of media outlets report sending invoices at the end of their broadcast month, usually within four days.

But a growing number of radio stations report shifting toward invoicing at the end of the broadcast schedule. This would also help to shorten the payment window and might be something for the TV industry to consider. 

Wider Usage of DSO Reports

When asked about monthly reporting, roughly one-third of participants said they prepare an aged trail balance on a monthly basis.

About 25% are using Days Sales Outstanding (DSO) reports.

The total number of companies that prepare monthly reports continues to range around 90%, a number that we would like to see inch closer to 100%.

Monthly reports help to raise consciousness within the organization about the importance of improving credit and collections practices.

Reducing DSO reduces your cost of money and can mean more to the bottom line than adding a new advertiser.

If you are interested in learning more about DSO, I encourage you to read the article about the topic on the BCCA Web site—www.bccacredit.com.

In response to a question about collection techniques that can shorten their DSO ratios, the majority of respondents indicate that they send monthly statements of accounts and make their first collections calls 60 days after the initial invoice.

Interestingly, a growing number of cable systems or networks reported making their first call 45 days after invoicing, whereas a smaller number of TV and radio stations called after 45 days when compared to results from the 2004-05 survey.

One of the greatest opportunities for improving DSO is in the area of resolving billing discrepancies.

The average amount of time it takes to be questioned about an apparent discrepancy stands at 40 or more days for a national invoice.

While this length of time is down from the last survey’s average, there’s ample room for improvement.

In fact, discrepancies involving local cable invoices were received within 10 days on average, according to this year’s report.

While these results might be slightly skewed by the composition of the cable sample, it’s still clear that some groups are enjoying better communications with their advertisers than others.

Both broadcasting and cable outlets reported improvement in the amount of time it takes to address these discrepancies, averaging 3-7 days this year as compared to 8-12 days in past years.

Our 2006-07 survey respondents also reported shorter amounts of time for receiving payments after addressing the discrepancies, shaving 3-4 days off the prior year’s averages. 

Making Gains

Using third-parties to help with collection efforts could be one of the key factors behind these year-over-year improvements. Roughly 60% of our cable respondents used a collections agency in 2006-07, as compared to 45% in 2004-05. 

Another positive trend: more than three-quarters of respondents to the 2004-05 and 2006-07 surveys reported that their write-offs have either decreased or remained the same.

Finally, while the overwhelming majority of participating media outlets reported a charge-back policy for their sales reps, fewer than 20% provide an incentive plan or bonus program to their collections managers for exceptional results.

This might be something worth evaluating in your next budget.

The BCCA Survey of Credit & Collections Policies is a helpful tool for our members and the industry.

From a benchmarking standpoint, it allows companies to compare their TV, radio or cable unit’s performance against their industry peers.

In addition, the results reported by survey respondents are helpful in determining the ROI for investments in such areas as electronic invoicing and the use of outside collections agencies.

With so many of us in the midst of budgeting for 2008, the data is well timed.

As an organization, the survey results also tell us how effectively we are communicating the importance of industry initiatives such as e-invoicing, benchmarking and liability position.

We are very grateful to all of the companies and stations that participated in the 2006-07 survey.

You have made it possible for us to develop a composite picture for where we stand today and where we need to go tomorrow.

If you would like to learn more information about the survey, visit the BCCA Web site.

Mary Collins is the president of the Broadcast Cable Financial Management Association, a professional society for financial, MIS and HR executives in the electronic media. Her column appears here every other Friday. She can be contacted at mcollins@bcfm.com or 847-716-7000.