Cash in advance (CIA) is a common practice of asking a client to prepay for their media. It can provide the Media Department an opportunity to negotiate better deals (cue: cash waving). An effective media buy will build in value-added extras, such as no-charge bonus spots, making the prepayment request worth the extra effort. And, in exchange for chasing client receivables, sales teams can focus on developing better plans and ideas for their clients.
When a client prepays for a campaign, it means the Finance Department is tracking those funds against the purchased media until revenue can be properly recorded. Often campaigns span over multiple months, so prepayments are monitored over the duration of the campaign to ensure proper revenue recognition. And more often than not, the broadcast calendar differs from the fiscal (corporate) calendar, so there’s usually a timing difference between book revenue and broadcast revenue.
Generally Accepted Accounting Principles (GAAP) is the standard guidelines in the accounting industry. There are a set of rules which identify how business income and expenses must be recorded. For example, revenue recognition, according to the Financial Accounting Standards Board, (FASB) Statement of Financial Accounting Concepts No. 5, states that revenue is recognized “when a transaction occurs and 1.) revenue is realized or realizable AND 2.) earned.”
Because of these rules, sales revenue cannot include CIA (i.e. the “transaction”) as income until media is reconciled and cleared (i.e. realizable and earned). Most radio stations generate their billing on the first Monday after the broadcast month ends. When the station invoices arrive, they are posted into a system where they are matched against the live buy. If any discrepancies occur, such as: spots air out of day part, incorrect air times and/or dates, or incorrect spot rates, credits or make goods must be requested.
Specialized media buying software automates most of the invoice reconciliation process, especially for stations that are equipped with electronic invoicing. But paper invoices must be manually posted into the system, and this process can be very laborious. More and more stations are utilizing electronic invoicing, and for good reasons. Not only does it reduce hardcopy paperwork and postage expense, but also because radio stations know that their electronic invoices will be uploaded, reviewed, and reconciled faster than manual invoices.
Once the station invoices are reconciled and “cleared for payment” (“cleared” meaning all discrepancies resolved and invoices match the buy) in the media system, then the related revenue and expenses can be entered into the accounting system. Estimated, or projected data, becomes actual data when the information is posted in the accounting system. Once the entire cycle is completed, and all transactions are posted, monthly financial statements can be prepared.
The process is perpetual. It’s challenging – and can be stressful at times. The volume of activity defines the time it takes to complete a month. Months overlap as the cycle starts all over again. Every month is exactly the same, yet entirely different.
There are so many rules and policies to adhere to. Like any business, there are always exceptions as well as steadfast do’s and don’ts. But in the end, and amongst all the chaos, it’s a delicate balancing act made possible by talented people and ordinary numbers.
Andi Sivesind is the Controller of The Radio Agency. Please follow The Radio Agency’s Blog “Sounding Board” by subscribing to the email or RSS links above.Visit our website TheRadioAgency.com