Toby Lanyon of TradeRiver explains how traditional cash flow finance methods fail to serve the film, TV and media industry.
A media-based goods retailer is advertising through many different mediums, via a substantial media buying agency. However, it faces a ‘Does the chicken come before the egg?’ dilemma, as it requires funding to finance a substantial bill before it receives the income generated.
Once an order has been made, the media-based goods retailer is committed to paying for that media time and space, so the media buyer is obliged to on-purchase the time they’ve agreed to, which needs to be pre-planned and pre-booked. This means that the buyer is open to the risk that its customer (the retailer) will not be able to pay for it.
The media buyer had, in the past, been credit insuring the retailer, to ensure it got paid. However, being a large buyer, it had hit its credit insurance ceiling, thus rendering it unable to insure the sale to the media retailer.
The Challenge Facing the Film, TV and Media Industry
A lot of media buyers rely on credit insurance in order to protect themselves against the risk of non-payment by their customer. A solution that provides payment earlier in the process – which would put the media retailer in a position to negotiate favourable terms with the buyer and which provides the retailer with a credit facility – would be very attractive.
However, providing funding for services (like advertising) cannot be financed by traditional means. These will only finance tangible goods, so that the lender can, at some stage along the process, take possession of the goods that it is funding. Services are notoriously difficult to get funding for, so film, TV and media companies struggle to get financed.
The Solution: Working Capital
In the case of the media-based retailer, it requires a working capital facility that provides it with credit to enable it to purchase its media requirements from its media buyer upfront, allowing it to settle the liability in the future at a point of its own choosing. This, in turn, dramatically improves the relationship between media buyer and supplier, because the media buyer can now purchase the retailer’s media with confidence.
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Chief Operating Officer, TradeRiver
Trade River are a trade finance provider that is a rarity in the world of alternative finance for its funding of services. Toby has 15 years’ broad-based investment banking experience and now works to help businesses – including those in the creative industries – achieve funding for their projects.