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Auditing & Revenue Assurance for an Evolving Digital Market

Yearly Archives: 2004

Analyze This

Cash Application Professionals Need the Right Tools to Manage Affiliate Collections

Imagine it’s your first day at work. Thanks to a degree in accounting and maybe a year or two at a big four auditing firm, you’re now employed at a major cable network. You’re responsible for the credit collections function for several analog and digital channels operated by the network. During your first day, you learn:

  • Sending invoices to your MSO and DBS affiliates isn’t productive. They will ignore them.
  • Payments are based upon the honor system.
  • Your invoicing system nomenclature doesn’t reflect that of the cable operator, requiring hours, if not days, for reconciling what you receive from the cable operator with your affiliate data.
  • When it comes to system sales and acquisitions, if you’re told at all, it’s probably six months after the fact.
  • Your rate card is based on channel placement, penetration, tiering, digital basic subscribers and limited basic qualifications. This wouldn’t be an insurmountable problem, if the data were available. Chances are, you don’t have any of the details, and if you do, they are probably outdated.

These are just a few of the hurdles that the credit and collections staff for a cable and satellite TV network encounters on a day-to-day basis.

As with many other industry groups, a credit and collections analyst has a variety of tools as recourse for delinquent accounts, including denial of future services or using a collection agency. Neither of these options has been of significant value to the cable industry. With more than 90 percent of the cable and DBS subscriber base clustered among 10 MSOs and two DBS services, denial of service usually becomes front page news and angers not only the consumer but the U.S. Congress as well. Additionally, your organization’s affiliate sales staff moved mountains to sign a three-year, five-year or even 10-year affiliation agreement, and the use of a collection agency will probably anger them more than the MSO.

While we tend to focus much of our resources and efforts on the Top 10 MSOs, there are still hundreds of independent cable and SMATV properties. The problem is, while they represent more than 90 percent of your affiliates, they account for only a small percentage of the revenue universe. Because most networks have only a limited staff to manage this department activity, they must devote most of their resources to sorting out the woes of the major MSOs.

So is there a real need for a network credit and collections department? The answer is “Yes!” However, in a typical cable network today, the title “cash application analyst” is aptly descriptive of the job function, and the singular title often represents the number of people assigned to it. In many cases, the issues facing the cash application analyst are not about who is paying and who isn’t, but rather “What is this payment for?” “Where do I apply it?” and “How do I apply it?”

Amalgamation of the credit and collections and cash application functions is a necessity for most networks. There is a knowledge-based intimacy among employees who are directly involved in cash application and understand MSO remittances and system structure. While traditional credit and collection staff will focus on standard collection issues, cash application analysts actually have the better understanding of nonpayment and underpayment or overpayment issues. This has happened because they deal with rebuild/non-rebuild issues, system collapses, headend consolidation, free periods for license fees, rate variances, channel lineup issues, tiering, and penetration issues, among others, on a daily basis.

Given this scenario, are the accounting records and ledgers cleaner for those networks that rely solely on cash application analysts? The answer is “No.”

The reasons for having a cash applications analyst handle all of these duties include the intricacy of applying cash, which requires isolating, identifying and addressing specific affiliate payment related issues. This has been a challenge to the industry for many years. Cash application analysts have not been given the tools to perform their responsibilities as well as they would like. With that in mind, it’s likely that your second day on this job will involve thinking about transferring to another position.

While there are rudimentary procedures in place to move remittance data electronically from payment backup to a network’s affiliate database, the sophistication of these processes presumes a static business environment. When change is minimal, these tools can be quite effective. However, this is cable, and about the only thing that’s constant in this industry is change. Cash application analysts need the ability to identify and resolve complex payment issues that arise from this dynamic marketplace. Even with a small percentage of payment changes each month, having more than 10,000 cable headends and properties can quickly overwhelm a department with issues that need to be resolved. As a result, cash application analysts spend much of their time performing data entry and other rudimentary and time-consuming tasks, short changing the more important task of analysis. But it is the reverse that is needed. In a world that evokes fear with the mention of Sarbanes-Oxley, short changing the cash application and collection process will quickly manifest itself in serious issues concerning the financial reporting of cash flow.

Our industry does not need more consultants explaining how to comply with Sarbanes-Oxley. While not glamorous, applying the right resources to give the cash application analysts the analytical tools to become more effective is equivalent to the Headstart program, which attempts to address potential problems at the earliest stage of development.

Now that we’ve developed a greater appreciation for the resources needed for a cable and satellite network’s credit and collections processes, let’s make that first day a little easier for the next new hires. Make enhancements, such as incorporating well-equipped cash application analysts, a part of your systemic response to Sarbanes-Oxley.