Many advertisers transact through a business document called an Insertion Order (IO). Insertion Orders are basically a promise to pay, once something has been delivered (i.e. an ad campaign). It’s no different than a candy bar manufacturer receiving a purchase order from Walmart: deliver the goods, and Walmart promises the pay. The problem however is that delivering the goods (or the ad campaign) requires an investment of time and resources upfront. With IO financing, media buyers who receive IOs can advance the funds to be paid under the IO, before the ad campaign has even begun. In other words, IO financing provides an advance of future, unearned media revenues, enabling DSPs and agencies to take on big customers and scale revenue.
How IOs Work in Digital Advertising
Insertion orders work as a future promise to pay. Basically, the IO governs the terms of the media buys. Once the media buying is complete, the countdown to receiving payment begins. Generally speaking, here is what a transaction with an IO looks like:
- Media Buyer and Advertiser sign the IO, governing details of the campaign.
- Media Buyer must deliver on X, Y and Z, and in exchange, Advertiser promises to pay.
- Media Buyer spends its own time and money to deliver on the campaign.
- Once completed and verified, the Media Buyer invoices the Advertiser for payment – usually 30, 60 or 90 days.
- Advertiser pays the invoice when due, completing the transactions.
The Pain of IOs: Time & Money
It’s bad enough the media buyer doesn’t get any upfront to start the campaign. But what’s much worse is the time it takes to complete the campaign. Some media campaigns take weeks or months. Add on top that waiting another 30-90 days, and the average time to get paid could easily push 120+ days.
Unfortunately, big advertisers dictate the terms of the deal. Their undue influence in negotiations with smaller DSPs and agencies give them the upper hand to set the terms to their advantage. For media companies dealing with much larger companies, the risk of transacting with IOs includes:
- Huge capital investment – the media buyer has to spend on the media buys upfront (i.e. cost of goods sold)
- Time delay – minimum of 120+ days to get paid the revenues generated by the campaigns is not unusual.
- Cash flow – the huge capital investment and time delay pose major cash flow risks.
- Credit risk – do your research to confirm the advertiser or agency is good for payment.
Unique, Dynamic Solution: IO Financing
IO financing is the process of receiving the funds the advertiser promises to pay, before the media campaign has begun. The objective of IO financing is to advance the media buyer enough money to cover their spend, with a maximum draw of 50% of the total invoice amount. Assume for example a media buyer receives an IO for $100,000 from an advertiser. They expect a 33% ROAS ($75K to generate $100K in revenue). Under a normal IO deal, they’ll have to come up with the $75K on balance sheet – via tapping into cash on hand, funding the business externally, or credit cards.
Sample IO Financing Transaction
- The advertiser and the media buyer sign the IO, beginning the deal.
- Media buyer obtains up to 50% of the IO value from OAREX ($50K).
- Media buyer puts up the remaining $25K as needed.
- The Media buyer runs the campaign, completing the deal, and invoices the advertiser for $100K.
- Upon invoicing the advertiser, the media buyer can advance another 30% of the invoice from OAREX.
- Media buyer gets paid $30K, making themselves whole plus realizing 5% of gross profits on the deal.
- Advertiser pays OAREX in 30, 60 or 90 days.
- OAREX remits the 20% un-advanced portion to the media buyer, minus fees.
If at the time the IO is signed, the media buyer has invoices on its balance sheet from prior completed IOs which have now turned into invoices, the media buyer can sell those invoices to OAREX for 80-90% upfront and use that capital to fund the balance of the IO (instead of coming up with the $25K on their own in the above example).
One-Stop-Shop for Media Buyers: IO Financing
OAREX offers a one-stop-shop for media buyers. Whether you’re an independent marketer doing Cost-Per-Install campaigns, or a DSP acting on behalf of agencies, or an agency acting on behalf of advertisers, we have a solution for you in our flexible IO financing.