Managing Debt in Period of Recession



In a period of recession with its attendant pressure on private initiatives, when accessing funds from banks is becoming as difficult as the proverbial camel passing through the eye of the needle, it is not out of place for business owners to put pressure on debtors and other business partners with outstanding liabilities. But when such debt recovery does not follow due diligence, substantial period of time is lost to needless controversy, writes Festus Akanbi

Only few are surprised that the emerging difficult operating environment is already pushing business owners to take desperate steps to remain relevant.

For instance, the advent of COVID-19 and its attendant strains on businesses are beginning to test the financial management of entrepreneurs, who have to cope with pressure from banks.

It is natural that when a company is pressed for funds and banks are not willing to lend without the usual stringent conditions, the immediate thing that comes to mind is to go after one’s perceived debtors. This is where the issue of effective debt management comes to play.

Debt is used by many corporations and individuals as a method of making large purchases that they could not afford under normal circumstances. A debt arrangement gives the borrowing party permission to borrow money under the condition that it is to be paid back at a later date, usually with interest.

Debt Management

In essence, debt management is very crucial for advancement whether in business, government or by individuals and groups. Sometimes, improper debt management precipitates avoidable disputes, which if not properly curtailed, may decimate the interest of the parties involved.

In his book The First 5,000 Years, David Graeber, an American Anthropologist, and a professor of anthropology, investigated debt across time and cultures and find it to be a primary institution, preceding exchange, money and any notion of the economy.

According to the Mckinsey Global Institute, by mid 2015, the world’s debt stood at $204 trillion, $86 trillion (50%) higher than it had been in 2007, immediately before the crisis, and $121 trillion (145%) higher in the year 2000.

Emerging markets and developing countries have about $11 trillion in external debt and about $3.9 trillion in debt service due in 2020. Of this, about $3.5 trillion is for principal repayments. Around $1 trillion is debt service due on medium- and long-term (MLT) debt, while the remainder is short-term debt, much of which is normal trade finance.

Certainly, debt management which has plagued the core existence of nations, businesses, whether indigenous or those with global presence is also a phenomenon in the media, which acts as a gatekeeper of information.

In Nigeria, the media industry is one of the sectors where debt and its management has become a recurring issue.

Many media organisations depend on their business relation with advertising and marketing communication agencies who develop and place adverts in newspapers, radio, television, billboards as well as digital platforms.

Managing Advertising Budget

About two decades ago, advertising agencies began to set up what is now called media independent agencies to specifically and empirically plan, buy and manage advertising spend more efficiently.

This became an attraction for big spender multinationals who believe in the value propositions of media independent agencies.

These agencies identify the best time frame, and windows for market penetration of target audience and recommend the budget to achieve clients’ objectives. They engage in processes which involve purchasing desirable spaces and time slots in the print and electronic media, for clients to reach their target markets.

Statistics shows that the global media planning and buying market growth is propelled by the growth of media expenditure. It is being aided by advertising agencies, and their action is being driven by the increasing penetration of the internet. The popularity of the internet is evident throughout the regions with a vast population shifting from television to online videos.

The Market Leaders

Notable among the global media buying agencies are Starcom, MediaCom, Carat, Vizeum, Horizon Media, WPP plc, and Omnicom Group Inc. Others are Publicis Group, Interpublic Group (IPG), Dentsu Inc., Havas Group, Hakohodo DY Holding Inc., Mindshare Worldwide, MDC Partners Inc., Acxiom LLC, among others.

Their global market value in 2019 was $425 billion, with a projected compound annual growth rate (CAGR) of 4 percent from 2020-2025, and expected market size of $537.6 billion in 2025.

In the United States, the market size of the media buying agencies industry is $7.3bn in 2021 and it is expected to increase by five percent, but has declined 2.6 percent per year on average between 2016 and 2021.

In Nigeria, media buying agencies that have made strides in the industry includes mediaReach OMD, All Seasons Zenith, Media Fuse, Starcom/Media Perspective, SBI Media and Media Seal among others.

These agencies have contributed immensely to the growth of local and international businesses, as intermediaries with media organisations, a situation that has greatly enhanced the way operations are run.

Disagreement Over Account Reconciliation

Because Nigerian business environment is not insulated from shocks being experienced in other climes, local businesses are having their own share of the pressure and the corresponding spats over account reconciliation. A case study is the current procedural disagreement over account reconciliation between two media partners in Nigeria, Galaxy TV and mediaReach OMD, which the media owners, according to reports, are now applying unorthodox management approach to resolve.

According to findings, the issue between mediaReach OMD and Galaxy TV borders on poor accounting process and the inability to reconcile and sign-off appropriately. From investigations, mediaReach OMD is said to have shown due diligence in ensuring reconciliation of accounts, in line with global best practices with all payment records.

Furthermore, it was alleged that efforts by the leading marketing and media agency to reconcile and get sign-off on reconciled position with Galaxy TV were not successful due to certain factors.

Other allegations include the refusal to approve the request for reconciliation of over 14 years; refusal to sign-off on accounts when such are not deemed to be in favour of Galaxy TV, even after the company’s finance team has signed off; rejection of third party monitoring report as the basis for compliance and payment; and the constant push for reconciliation once the company loses its financial records.

The situation has been allegedly aggravated by the President of the broadcast organisation, Chief Steve Ojo, who, in 2019 was said to have engaged an external auditor, Adesola Adewumi & Co. to undertake a comprehensive reconciliation of its financial transactions with mediaReach OMD for the period covering 2014 to 2018, an exercise that was unjustifiably not concluded.

A source disclosed that the media agency made concerted efforts to ensure smooth reconciliation, as the statement of account sent to it for the period 2010 to August 2019 was signed-off with the broadcast organisation also in 2019.

The source added that instead of taking note of the reconciled accounts, Galaxy finance team was said to have written to the media agency stating that their President requested for a revisit of transactions from 2010 to 2013, which had been signed-off. Again, the TV station requested for another round of transactional review of accounts.

It was gathered that after series of meetings with Galaxy TV, the media agency shared on annual basis, all payments made by it from 2007-2019, including the names of banks, account numbers and the dates payments were made, although the information were said to have been presented to the President of Galaxy TV in the past.

The source said that other efforts of reconciliation with Chief Ojo includes tripartite meetings with major clients, where it was agreed that expanded reconciliation team comprising the finance team of both organisations as well as their legal representatives and external auditors be set up to hasten the settlement.

The source explained that the situation keeps snowballing from one inconclusive meetings and reconciliation attempts to another, with the presence of the Galaxy TV team.

Attempts to get the media agency’s explanation was difficult. A director of the agency, Mr. Alaba Fadero, did not immediately respond to THISDAY enquiries. When he eventually caved in to pressure, he said the organisation does not like to join issues, saying MediaReach has good relations with many media organisations spanning two decades which has been mutually beneficial, as an international organisation committed to best practices, proper accounting and engagement with partners.

He said it is in this light that they would rather focus on dealing with this issue professionally, rather than engaging with the partner in the media, that the issue is about records, accounting and data. “Any dispute arising from there should be resolved based on best practices of accounting, records and data,” he stated

Industry watchers wondered why it was difficult to resolve the issue if it is true that the MediaReach team was able to present all the needed facts and figures on their operations with Galaxy. They suspected that Galaxy TV might be dealing with the challenge of record keeping, which explains the insistence that mediaReach team be presenting records repeatedly.

It was alleged that the figures pronounced as owed were falsely computed as several payments have not been documented by the media owner.

Speaking on the need to tread softly on corporate disputes, a boardroom guru and Managing Director, Enterprise Life Insurance, Nigeria, Mrs. Funmi Omo advised the Galaxy Tv and MediaReach OMD to ensure the dispute is settled amicably.

On who keeps the records, Mrs. Omo said both parties were supposed to keep adequate records of transactions to avoid this kind of dispute. “Ideally, both parties should have records and keep records,” she stated.

Several efforts made to get Chief Ojo’s position on the controversy over account reconciliation with mediaReach OMD didn’t succeed. SMS and Whatsapp messages sent to him on Tuesday was not acknowledged, neither did he respond to the email message sent to him on Wednesday. He was also not accessible on his mobile phone numbers as the time of going to the press.

However, one hopes the issue between the two business partners will be resolved amicably as soon as possible in view of the wrong signals which a protracted battle will send to other industry players in a period when all hands were supposed to be on deck.