With a complex supply chain and extended payment terms, adtech companies are concerned about cash flow when they should be focusing on growth and innovation.
Here David Mandeno, COO and co-Founder at fintech platform Revving, takes us through the causes and possible solutions…
1. What problems do adtech platforms face in terms of cash flow, and how does this impact them?
The problem is actually pretty simple. Every year, the digital advertising supply chain gets longer and more complex as new platforms, solutions, innovations and technologies enter the market.
And with that comes increased friction in the supply chain, because the money has further to travel before everyone gets paid. As a result, adtech companies’ revenues are locked up in extended payment terms – often north of 90 days, sometimes as long as 180 days – or paid late.
This can create significant cash flow problems for businesses, particularly as margins become increasingly tight, and creativity, innovation and growth are subsequently throttled.
There is significant cultural inertia around the issue. Upfront work is generally expected from most adtech companies, and long payment terms, and even delayed payment, are accepted as the norm.
Larger media corporations, in particular, tend to hold on to their capital for as long as possible, exacerbating the financial friction along the supply chain.
2. What’s the solution for adtech firms looking to stabilise their cash flow?
The short answer is to look at financial support, but adtech firms need to find a fintech partner that truly understands the adtech space and how the digital economy works.
In this way they can get the financial support they need through a funding model that takes a holistic, bespoke view of their supply chain and creditors.
Fintech companies that provide this service – and there are very few operating across the entire adtech ecosystem – can offer significantly more money because the credit risk is focused upstream on large, solvent tech platforms and brands.
As a result, many adtech businesses will have a strong credit profile, and can be offered significantly more money than a standard loan.
In fact, through our funding model, we’ve been able to offer adtech businesses up to 55x more money than a traditional bank.
This helps adtech providers with cash flow problems grease the wheels of their financial machine, invest more in growth, and also use the additional information this kind of funding provides about creditors to fully understand their financial position, and plan accordingly for the future.
3. You just mentioned a couple of benefits, what other potential does this kind of funding have for businesses in adtech?
The most immediate impact is financial certainty. When cash flow becomes predictable, businesses can plan ahead, reduce risk and focus more on building and innovating – rather than chasing payments or delaying decisions due to liquidity concerns.
There are a lot of other benefits, too. This kind of predictable funding helps a business fully understand its financial position, and how its creditors affect its ability to do business.
It’s through this greater visibility of payment and credit risks in the digital supply chain that we’re able to help businesses grow, while also helping them understand their risk and de risk.
There are also opportunities for adtech platforms without a cash flow problem, but are looking for alternative forms of investment.
Platforms like Revving can offer businesses large pools of additional liquidity and create a better return on investment than the cost of the loan.
We’re seeing quite a few of our customers operating in this manner to invest in things like additional marketing to grow their business.
4. What challenges are solutions like Revving facing?
There are two challenges that we – and platforms like ours – face regularly.
The first is inertia. As I mentioned earlier, there’s a general culture of acceptance that long payment terms, and other historic norms that cause cash flow problems, are just part of the furniture.
It’s simply how things are done. And it’s strange that some CFOs at adtech firms we’ve spoken to are resistant to change, and doing things differently.
This even applies to huge businesses, who regularly get paid late but are big enough to manage the problem. Our message is that companies need to tackle these low expectations.
They should look at the innovation that Revving and similar platforms can provide, and consider how that might fit across different aspects of their business.
The second challenge is that doing what Revving does is hard; it’s messy to tackle.
It really goes much deeper than invoice factoring, and the way our technology integrates with an adtech business’s financial system to build a complete picture of its risks through data has taken years to develop.
5. What does the future hold for this kind of funding in the space, and how will it change the adtech landscape?
As technology develops, we’re going to see innovations around data use, how data can be used to fully understand a business’s financial situation, and how funding can be used to solve cash flow issues.
My hope is that we’ll see a greater appreciation for this kind of funding and that, as it becomes more commonplace, we’ll see a change in attitude, with inertia becoming less of a barrier for adtech platforms looking to take full control of their cash flow.