For independent ad tech vendors, the reality of working directly with brand advertisers has its drawbacks.

Late-paying advertisers have long been a source of pain for agencies. Now ad tech vendors are increasingly feeling the burden of stretched payment terms, as a byproduct of the trend toward in-house programmatic media buying.

Advertisers like Hershey’s are taking the reins from their agencies to negotiate programmatic deals directly with ad tech vendors. When it comes to negotiations it’s now more the advertiser procurement teams, not the media agency, in the driver’s seat and dictating even-longer payment terms. Kraft Heinz now gives its agencies and ad tech vendor suppliers  90-day payment terms, as does Unilever. Kellogg’s, GsK and AB InBev demand 120 days. The longer an advertiser can hold on to media money, the more interest can be earned on it, which procurement can then write up as “savings.”

Trouble is, not every ad tech vendor can handle the elongated payment terms that come hand in hand with dealing directly with advertisers. It can take ad tech vendors as little as 30 days to get paid by agencies or as long as 90 days. Advertisers, however, tend to take between 30 and 120 days to pony up.

“Many marketers are good payers, in the 30-to-60-day range,” said Ari Paparo, CEO of ad tech vendor Beeswax. “But a couple of high-profile marketers in the U.S. have asked for what I consider to be abusive payment terms of 120 days or more.”

For buy-side vendors like The Trade Desk, which experienced a 52% jump in revenue last year to global brands spending more on its platform, the shift has been a commercial boom. Others, Sizmek among them, haven’t fared so well.

Part of the reason Sizmek filed for bankruptcy last month was due to its inability to reconcile the flow of money coming into the business from advertisers with what it owed to the supply-side platforms.

“Extended payment terms from advertisers was one of the undoings of Sizmek because the amount of operating capital required to run a DSP of that size is staggering,” said the executive. “There were instances where we were giving clients as long as 90 days to pay us as there’s always pressure on payment terms from advertisers wherever they negotiate.”

Instances like this have gotten progressively worse at the fringes of the ad tech industry and are slowly seeping toward the center. The knock-on effect caused by late-paying advertisers has sent ripples through the cash flows of agencies ever since the 2008 financial crisis. But agency business models have been built to withstand these sorts of burdens and operate on a very different cash-flow system to tech vendors. The rise of in-housing has meant that procurement teams have taken over from media agencies in negotiating terms. That’s put ad tech vendors in a more vulnerable position, according to ad tech sources.

“Clients are playing a game of trying to exterminate credit terms, and it is starting to stretch business models to the breaking point,” said an ad tech exec who spoke on condition of anonymity. “Only the client gains from this.”

Like other ad tech vendors, Sizmek devised workarounds to avoid waiting longer to get paid. Some advertisers were offered direct access to the SSPs and publishers that were plugged into the DSP, said the former executive. Doing so gave advertisers their own “seat” on the platform with more insight into what ads were bought in exchange for being liable for the payments to those companies.

“Like most ad tech vendors still going, we tried to focus on the incentives we could offer advertisers around transparency, data and services in order to stand out in a commoditized space,” said the former Sizmek employee. “We had to be financially attractive for advertisers and agencies to switch from one platform to another and so being flexible on payment terms and offering other incentives were ways of winning business.”

Four months without pay is fine for ad tech vendors big enough to handle the cash flow, but many can’t. Small to midsize players rely on regular payment to pay salaries, and when they don’t get paid the domino effect can cripple businesses, throttling everything from bonuses to the amount of money that is used to buy media, according to ad tech sources.

Payment terms have become an important part of the negotiation tactics used by advertisers to squeeze ad tech vendors, said the former chief media officer of a global advertiser. The tactic partly stems from the fact a lot of agency executives, who know how to use extended payment terms with ad tech vendors as free short-money lending deals, have moved into advertiser marketing and procurement teams. The same chief media officer said marketers should not support “excessive payment term positions” as advertisers have a responsibility to the supply chain to make payment promptly to their immediate payee. Not every marketer is so sympathetic, however, given the financial pressures on them to hang on to cash for as long as possible.

“It’s a concern, but it’s one we have to cope with because there’s no way we can enforce shorter, timelier payments,” said an ad tech exec. “If you don’t fall into line, then an advertiser will just spend their money elsewhere given many use more than one DSP.”

Smaller vendors feel they have no choice but to accept extended payment terms. If they agree, smaller ad tech startups have a better chance of winning incremental business ahead of larger platforms who may not budge on their standard terms. To offset the pressures, some vendors have resorted to charging higher fees to advertisers that demand payment terms of over 100 days.

“There’s a lack of education at advertisers when it comes to how ad tech works given how quickly the market moves,” said Kees de Jong, founder of executive search firm Uncommon People. “It’s clearest in those instances where ad tech decisions are handed over to a procurement department that doesn’t really understand the value of each vendor and so makes a decision that’s inherently based on price.”

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