Late Programmatic Payments Reach Post-Covid High Amid Liquidity Crunch

While the advertising downturn of the last year has had a highly visible impact on digital publishers, leading to layoffs, fire sales and closures, new data suggests that a similarly concerning economic crunch could be lurking beneath the surface of the ad-tech ecosystem. In the first quarter of this year, 53% of programmatic payments were late, up from 35% during the same quarter last year and 38% overall in 2022, according to the digital media financing service Oarex. Likewise, 54% of direct payments were late in the first quarter, up from 48% in the year prior. Rather than an isolated issue, payment delays can have a ripple effect on the digital media supply chain, affecting interconnected ad-tech vendors, publishers and other downstream parties because of sequential liability. Late payments are a common occurrence in the world of digital media, according to Marc Ropelato, the co-founder and chief executive officer of the ad management service NoBid. Supply-side platforms routinely delay payments up to five days, an irritating, if standard practice in the industry. For Digital Publishers, Ad-Supported News Remains an Unsolved Puzzle But a combination of adverse economic factors, including a depressed advertising climate and fallout from the closures of Silicon Valley Bank and EMX, have exacerbated the issue, according to Nick Carrabbia, the executive vice president of Oarex. As a result, rates of delayed payment have reached their highest since March 2020, signaling a discrete but nonetheless alarming lack of liquidity in the market. “The data is clear: late payments continue to rise,” Carrabbia said. “These companies are not coming out and adjusting their payment terms—they are just paying late, and you never know how a $100,000 shortfall could affect a business.” These delays disrupt companies’ cash flows, making it challenging for them to pay their downstream vendors on time, and they lead to opportunity costs by preventing businesses from operating as efficiently as possible. Most frustratingly, they can tilt an otherwise healthy business into a financial crisis through little fault of its own, creating a volatile environment in which one insolvent company can jeopardize the broader ecosystem. As the economy stalls, delayed payments and pay discrepancies rise A combination of economic factors has helped spur the uptick in delayed payments, according to Ankit Oberoi, CEO of the ad management service Zelto. According to Oarex, which created an index of 30 mid-tier digital media companies, the fourth quarter of 2022 was the worst Q4 in the last five years in terms of revenue growth. It was also the third-worst quarter, in general, over the same time period, trailing only the pandemic quarter (Q1 2020) and Q3 2022. Dismal results like these, combined with the rising cost of inflation, have left digital media companies in a pinch. In the first quarter of this year, Zelto saw an average additional delay of two to three days—a delay that comes on top of its usual grace period, according to Oberoi. “A payment that used to take two days can now take up to six,” Oberoi said. At NoBid, between 15% and 20% of its demand partners have paid late this year, according to Ropelato. In March, one company paid 13 days late, while another in December passed its payment deadline by almost three weeks. Companies like NoBid and Zelto take ample steps to protect their downstream partners from experiencing any knock-on effects. NoBid recently opened a $500,000 line of credit to ensure it has cash on hand in case its upstream vendors fail to pay, and it has previously worked with Oarex to provide similar insulation. Zelto, which classifies its demand partners into tiers based on their financial health, says it has no concern about tier-one partners like Google. For tier two clients, it insures their accounts to guarantee their funds, and it maintains a cash reserve to account for the volatility of its tier three clients. Despite these precautions, delayed payments still act as a drag on business efficiency in the form of opportunity cost. A cash shortfall could prevent a publisher from, for example, buying paid social to amplify a piece of content performing particularly well, according to Carrabbia. And the volatility created by the delays can threaten the balance sheet of even the most fiscally responsible companies. “We want to be the company that always pays on time,” Ropelato said. “We will eat the cost in order to pay the publishers, but nobody likes to be owed money.”