Formalize client diligence processes for all organizations in the sequential liability chain.
High Contrast
Formalize client diligence processes for all organizations in the sequential liability chain.
Enhance the relationship between finance and sales.
Ensure third-party ad-tech firms are subject to the same scrutiny as advertisers.
Establish a leading-class credit and collections organization.
As the environment for advertising sales has become more complex, publishers and other digital media companies that work with multiple ad agencies or ad-tech vendors need to be vigilant about risks involved in contracts with those partners. Most if not all such contracts include some variation of sequential liability protections, which limit the liability of one party to the contract if another party fails to pay.
In the media and entertainment sector, sequential liability clauses typically protect advertising agencies from having to pay media vendors if their clients (the advertisers) fail to pay the agency; the media vendor can only go after the advertiser for payment. These clauses are common in advertising contracts because they protect agencies from the risk of nonpayment by their clients, which is especially critical for agencies that work with small or new businesses that may be more likely to default on their payments.
Publishers and other digital media businesses often lack the leverage to negotiate these contracts in such a way that reduces their exposure, which is yet another pressure on the sector during a time of ongoing revenue disruption and the intensifying battle for advertising dollars. Collecting outstanding receivables in a timely manner also continues to be an issue for publishers, contributing further to cash flow management challenges.
Publishers and other digital media businesses often lack leverage to negotiate these contracts in such a way that reduces their exposure, which is yet another pressure on the sector during a time of ongoing revenue disruption.
Publishers and digital media organizations will never eliminate their exposure to sequential liability relationships so long as those clauses continue to be a key feature of advertising contracts. In fact, the sequential liability clause is present in the Standard Terms and Conditions Version 3.0 document as laid out by the Interactive Advertising Bureau, the leading advertising trade association that sets industry standards for the digital advertising industry (in other words, this clause is unlikely to go away anytime soon).
However, publishers and digital advertisers can employ the following strategies to mitigate their risk and exposure to sequential liability: