Exchanges actually paid their publishers on time more often than not during the height of the pandemic.
It’s counterintuitive, but true, said Hanna Kassis, CEO and founder of OAREX, a company that helps finance publishers by purchasing their digital media and advertising receivables.
The economic environment is brutal. For example, hundreds of ad tech companies signed a petition in late March pushing for Google, Facebook and Amazon to offer more flexible payment terms during the uncharted territory of a pandemic economy.
But OAREX found that for the month of May, payments that were late by more than two weeks dropped to an 18-month low. The number of payments that were more than 15 days late declined from 23% to 13%.
Thanks for the PPP
Although businesses are struggling to stay afloat, they have a couple of semi-tailwinds blowing for them.
It’s become common practice for indebted companies to negotiate extended payment terms. Although this was true before COVID-19 – payment terms increased by nine days between 2017 and this year, as per OAREX – the trend really started to accelerate as the pandemic-related pressure ratcheted up.
Some of the payments that would have been late in May were technically on time, because many exchanges had more time to pay, Kassis said.
Also, some digital media firms were able to pay their bills using stimulus money.
A lot of companies received their Paycheck Protection Program (PPP) allotments in April, and funded their Small Business Association loans in May, Kassis said. In late July, the Federal Reserve extended all coronavirus emergency lending programs that were slated to end in September until the end of the year.
“Things can change on a dime in this economy,” Kassis said, “but as long as the Fed is there as a backstop, there will be some bullishness.”
Possible problems ahead
There is a fly in that ointment, though.
Many ad tech companies have already applied for, received, paid out and subsequently run out of PPP cash.
“And you can’t go back for more, so we’ve possibly already seen the effect of it reflected in the payments,” Kassis said.
OAREX also found that chronically late-paying companies got worse in the second quarter. The number of laggards that pay late more than half of the time increased by 11.5%.
And topping it all off is the question of what will happen to margins if payment terms don’t return to some semblance of normal once the economy evens out.
“If you’re expecting a payment on net 60 and it comes in at net 75, you have to think about the costs you’re going to incur during that 15-day window while you’re waiting,” Kassis said. “Extending payment terms doesn’t necessarily affect your gross profits – but it will affect your bottom line if you have to tap into cash just to carry yourself over.”