Are small, independent agencies dwindling between digital ad boom and credit doom?

New Delhi: India’s digital advertising industry is booming, but beneath the surface lies a financial challenge squeezing small to mid-sized agencies. Caught between strict platform credit terms and clients’ demands for extended payment windows, these agencies face mounting risks of cash flow crises and defaults.

“Media buying favours large agencies with deep pockets,” an industry expert told BestMediaInfo.com. “Smaller players struggle with a mismatch between what platforms like Google and Meta enforce—credit cycles of 60 and 30 days, respectively—and what clients expect, often 90 days or more.” 

Why do clients seek extensive credit periods?

This gap traces back to traditional media like print, TV, and out-of-home (OOH), where credit periods stretch from 60 days to a year. Krishnarao Buddha, former Senior Category Head - Marketing at Parle Products, explained why clients lean on extended credit. 

“In traditional media, OOH campaigns might offer six months to a year for payment. Clients accustomed to this expect digital agencies to match those terms,” he told BestMediaInfo.com. For many advertisers, delaying payments preserves cash flow, allowing them to fund campaigns from profits rather than upfront budgets.

But the burden isn’t solely on clients. Eager to tap India’s Rs 1,64,137 crore ad market, independent agencies sometimes onboard clients without rigorous financial vetting. This can lead to payment delays or defaults, leaving agencies to cover platform dues themselves.

In other scenarios, multiple client defaults have forced agencies to bear the cost. Compounding the issue, smaller agencies often lack the reserves to absorb such shocks, unlike larger firms with diversified portfolios or stronger credit lines.

Running out of credits

While the big digital agencies do not face this issue, small or independent agencies often run out of credit limits on their accounts on Google or Meta. If they default on their credit, their account will no longer remain whitelisted. To prevent this, small agencies often turn to lending options.

Speaking on why independent agencies may resort to credit lending, Rahul Vengalil, CEO and founder of Tgthr, said, “Most of the agencies have a 30-60 day period with the client. If you are not following up rigorously, then the client may take 90-120 days. By that time, the media vendors start following up rigorously with the agencies.”

In the case of Google and Meta, the agencies get a 7-day warning before their account is suspended. In some cases, especially with Meta, the suspension can kick in even sooner. 

Based on their scale and volume, digital agencies use different financial instruments. Some of the credible forms of lending that agencies resort to include overdraft facilities, invoice discounting, loans against securities, and equities. “Most of the independent agencies and small digital agencies will work on overdraft,” Vengalil said. 

Agencies with strong track records may use traditional banks or cash reserves to soften the impact, while smaller independents rely on available tools.

An industry expert also suggested that such a situation might give birth to a large grey area where the ad agencies, to keep their cash flows torrential, may get into the practice of deriving the respite from charging a premium from the clients. “What this means is that while the agency is getting the inventory for, let’s say, Rs 100, the client will end up paying Rs 125,” the expert explained. 

Credit reselling

Emerging as a new contender challenging traditional practices, credit reselling has gained significant traction lately.

Shedding light on the matter, an industry veteran who preferred anonymity revealed how many agencies that have partnered with Google and Meta (based on their hefty platform spending) resell their credit lines.

There are agencies that have a credit line amounting to roughly Rs 100 crores. These digital agencies often lend credits to smaller agencies that are running out of it and charge interest on the amount lent. In addition to this, the agencies reselling the credit also benefit from what digital ad platforms call ‘incentive programs.’ 

For instance, Google offers incentives to its partners to proliferate the usage of its advertising services. 

As per the platform, “The value of these incentives is based on forecasted or actual spend over the course of a predetermined term or estimated market value of services provided. Participants in the Video Incentives Program, for instance, may receive incentives based on factors such as their video advertising spend and investments made to enhance their ability to use Google's advertising programs.” 

These incentives may include “cash payments, discounts on standard pricing, free media and impressions or access to special inventory.” 

Cutting the pressure

Digital ad agencies need to sharpen their tools to cut through the pressure. The entire game is about managing cash flows. Small or independent agencies must monitor cash flow to avoid succumbing to pressure and borrowing credit.

Industry experts say agencies that resist the urge to onboard lucrative clients rarely stumble into this trap. If small and independent agencies start adopting the practice of credit borrowing or lending, then it might take a very ugly turn for the future of digital ad agencies, an industry veteran said.