Digital media has been widely hailed as a rare growth area for the ad industry, which is expected to see a near double-digit drop in spend this year.
However, steady liquidity flow in a recovering market is not always certain, with advertisers often pushing the boundaries of their payment terms with providers.
During such times, companies often turn to finance outfits known as “factoring firms” that effectively buy invoices from digital media buyers and sellers in need of capital in return for immediate payment.
Oarex Capital Markets, a firm based in Cleveland, Ohio, is one such organization, working with smaller businesses that banks typically don’t finance. Today, Oarex announced that it has closed on a $50 million credit line with East West Bank.
Hanna Kassis, founder and CEO of Oarex, said the fundraising is a sign that banks are trusting the general health of the digital ad industry.
“We fund [companies] by taking credit from the Xandrs and the Googles of the world … and that’s what banks like right now,” he said. “If the bank did not like the credits we were buying, they wouldn’t give us a line of credit.”
The new capital doubles Oarex’s credit line after it secured $50 million from Arena Investors LP in July 2019. Kassis said the additional funding means Oarex will be able to “offer more aggressive rates” to the industry, meaning vendors will be better compensated for the invoices they sell to his outfit.
The Covid-19 pandemic decimated the U.S. advertising industry, with GroupM forecasting spend to drop 9% this year. But digital ad spend is set to buck that trend with an expected increase of 5% this year and 18% in 2021, according to the media buying giant.
Marketers are investing more in digital channels due to the flexibility offered by programmatic trading in the face of pandemic-induced uncertainty and the decline of traditional channels, like linear TV.
Problems arise when advertisers continue to lengthen payment terms to agencies, which can set off a chain of events that can impact ad-tech providers; smaller players are particularly vulnerable to such phenomena.
In particular, the ad-tech sector is still acutely aware of the number of companies short changed by the high-profile bankruptcy filings of outfits such as Sizmek and Videology in recent years, which collectively owed their clients hundreds of millions of dollars.
Kassis expects CPMs to rise next year as more investment flows into digital channels, especially if a Covid-19 vaccine comes out. “A lot of people are going to be chasing dollars that they missed out on in 2020,” he said. “There’s a FOMO in the industry.”
The initial financial hit of the pandemic forced many companies to extend their payment terms, which in some cases can be as long as 120 days. Despite digital media’s recovery, Kassis expects payment cycles to remain long: “Once you’ve extended them, why would anyone go back?”
