Affiliate Payment Protection

[aaclapham]

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Once a sale is validated by the merchant most affiliates think that's one in the bag and just wait for payment, however I have found out that's not the case.

On one network a merchant left at the beginning of the year and is refusing to pay outstanding commission, and on another network a merchant went into Liquidation and all unpaid commission looks to have been cancelled.

I am not interested in discussing the above cases as they are just examples, however is there not a way of protecting the affiliates from non payment, as the amount of money in these two cases was £x,xxx which I cannot afford to lose.

I am on the side of the networks paying up, surely they could have insurance against non payment by merchants?

This is meant to be a proper business, so it should have standards.

[Hero]

as I'm sure you appreciate, it's not just you losing out, but the network has not been paid either. Most networks actually cover quite a lot of payments without having been paid by the merchant, either when they're on prepayment or where the network makes the decision to cover what's outstanding out of their own pockets; and most of those, you don't even see or acknowledge. The network to draw the line somewhere though as to how much they are prepared to cover. You wouldn't want a network to go under due to poor cashflow, I'm sure.

You're probably not interested on whether or not the network is owed money so long as you get yours, but a better approach to the matter would be for you to ask for improved financial controlling by the networks so they minimise your exposure (and theirs) to bad paying merchants. We have very stringent financial measures to non payment and we chase up payments on a daily basis, both the account managers as well as our finance dept. We have entered legal battles on affiliates' behalf, and in some cases, have had to settle to receive only part of our override, in order to ensure commissions are paid in full. Again, not situations we like to be involved in, but we have to in our effort to protect your interests.

[aaclapham]

I am glad to hear that one network is trying their very best and it is much appreciated - what about the other ones?

Don't forget to make this commission, some affiliates are spending money in advertising and ppc under the impression that they will get the approved commission they are owed.

I am very surprised that in the current climate when signing up a merchant their aren't mechanisms put into place such as insurance for none payments etc.

[bapages]

One other consideration, you have to rembere that as an affiliate you are a buisness. Unfortunatly, it is common risk in business that suppliers and customers do go under and you need to take measures to protect yourself as well.

[findlite]

I am glad to hear that one network is trying their very best and it is much appreciated - what about the other ones?

Don't forget to make this commission, some affiliates are spending money in advertising and ppc under the impression that they will get the approved commission they are owed.

I am very surprised that in the current climate when signing up a merchant their aren't mechanisms put into place such as insurance for none payments etc.

Sadly this is a fact of business - you could be making knickers or delivering parcels and you would still have the same rubbish to contend with.

My advice is pick your merchants wisely. With a little business acumen its often pretty easy to spot a pup - you don't always get it right but you should be developing a nose for it (-:

Sometimes having that gut instinct when something is right or wrong and getting out/getting in is half the battle in business.

[Rovers0411]

as I'm sure you appreciate, it's not just you losing out, but the network has not been paid either. Most networks actually cover quite a lot of payments without having been paid by the merchant, either when they're on prepayment or where the network makes the decision to cover what's outstanding out of their own pockets; and most of those, you don't even see or acknowledge. The network to draw the line somewhere though as to how much they are prepared to cover. You wouldn't want a network to go under due to poor cashflow, I'm sure.

You're probably not interested on whether or not the network is owed money so long as you get yours, but a better approach to the matter would be for you to ask for improved financial controlling by the networks so they minimise your exposure (and theirs) to bad paying merchants. We have very stringent financial measures to non payment and we chase up payments on a daily basis, both the account managers as well as our finance dept. We have entered legal battles on affiliates' behalf, and in some cases, have had to settle to receive only part of our override, in order to ensure commissions are paid in full. Again, not situations we like to be involved in, but we have to in our effort to protect your interests.

Your comment 'You wouldn't want a network to go under due to poor cashflow' should be a major concern for any affiliate. Networks should not be relying on the affiliates commissions they handle to support their own cashflow.

Affiliates would have a lot more confidence in any network if there was more regulation regarding the handling of affiliates commission. A lead should be taken from the highly regulated travel industry. If not bonded by ATOL/ABTA under the 1992 Package Tour Regs, tour operators and travel agents have to provide clients with financial protection through the operation of Trust/Client A/cs, usually underwritten by insurance and Director guarantees. Why don`t networks take a lead from the travel industry and have voluntary regulation of their own business by setting up a Client A/c into which all client commissions are paid? It would give Affiliates confidence knowing their commissions are safeguarded in the event of a network's financial collapse and also knowing there is no benefit to network's holding onto commissions longer than necessary as requirements of a Client A/c would prevent network's withdrawing their own override commissions until Affiliates were paid.

Also, a question I have asked, that no one has been able to answer, is whether networks act as a principal or agent in the transaction. Again, taking an analogy from the travel industry, if they act as a principal they are responsible for payment to the affiliate regardless of whether they have been paid by the merchant. If they act as an agent then then in the event of a network demise, eg DGM, even if they have paid the network the merchant still owes money to the affiliate. In the current situation it appears that networks and merchants want the 'best of both world's - if a merchant fails networks will not pay commissions and if a netwrok fails merchants act as though that absolves them of any responsibility to affiliates. The industry cannot pick and choose when networks act as a principal and when they act as an agent - legal clarification is needed!

[Hero]

Your comment 'You wouldn't want a network to go under due to poor cashflow' should be a major concern for any affiliate. Networks should not be relying on the affiliates commissions they handle to support their own cashflow.

Affiliates would have a lot more confidence in any network if there was more regulation regarding the handling of affiliates commission. A lead should be taken from the highly regulated travel industry. If not bonded by ATOL/ABTA under the 1992 Package Tour Regs, tour operators and travel agents have to provide clients with financial protection through the operation of Trust/Client A/cs, usually underwritten by insurance and Director guarantees. Why don`t networks take a lead from the travel industry and have voluntary regulation of their own business by setting up a Client A/c into which all client commissions are paid? It would give Affiliates confidence knowing their commissions are safeguarded in the event of a network's financial collapse and also knowing there is no benefit to network's holding onto commissions longer than necessary as requirements of a Client A/c would prevent network's withdrawing their own override commissions until Affiliates were paid.

Also, a question I have asked, that no one has been able to answer, is whether networks act as a principal or agent in the transaction. Again, taking an analogy from the travel industry, if they act as a principal they are responsible for payment to the affiliate regardless of whether they have been paid by the merchant. If they act as an agent then then in the event of a network demise, eg DGM, even if they have paid the network the merchant still owes money to the affiliate. In the current situation it appears that networks and merchants want the 'best of both world's - if a merchant fails networks will not pay commissions and if a netwrok fails merchants act as though that absolves them of any responsibility to affiliates. The industry cannot pick and choose when networks act as a principal and when they act as an agent - legal clarification is needed!

You're raising valid points, but you've misread what I said. I've never said that networks should keep commission payments or use them for their own cashflow. What I said is that you can't expect the networks to pay you out when they haven't received the money from the merchants.
I agree with you, using payments from merchants to cover holes and poor financial management is a sign of a weak network.

[bapages]

So what is to be done by the IAB to move this issue forward?

The bigger issue I see here is the tempation of parent companies of networks, seeing a network as cash rich with affiliate commissions and owed and winding them up to pay off loans owed to parent companies and buying them back on prepack deals with an Administrator.

I think a bonded scheme is ideal for those companies that go but and where the merchant has paid the commission.

[dc000000]

I think a bonded scheme is ideal for those companies that go but and where the merchant has paid the commission.

If there is to be a further mechanism which underwrites payments then it is the affiliate who will be paying for it - by reduced commissions. So, in effect, the affiliates who are careful who they deal with will be subsidising the affiliates who are not?

[Rovers0411]

You're raising valid points, but you've misread what I said. I've never said that networks should keep commission payments or use them for their own cashflow.

I agree with you, using payments from merchants to cover holes and poor financial management is a sign of a weak network.

I understand you never said networks should use affiliate commissions to fund their own cashflow BUT, as I understand them, under current arrangements there is nothing to stop this happening. Even if networks do use a seperate account for receipt and payment of affiliate commissions in the event of finding themselves being placed into liquidation that money is not ring fenced for affiliates. The company's administrator would have access and control over such an account and affiliates would just become 'normal' creditors. In the event of a network's failure a properly constituted Trust Account would ensure affiliates commissions were protected.

Even if the idea of operating Trust Accounts was not adopted by all networks, those that did adopt the idea would benefit as in the eyes of merchants and affiliates they would be seen as more creditable organisations.

What I said is that you can't expect the networks to pay you out when they haven't received the money from the merchants.

That is a grey area and one that I don`t believe has ever been established in the fledgling affiliate industry as I don`t believe it is clear if the networjk acts in the capacity of an agent or a principal. Again, take an analogy with the travel industry. The principal (ATOL holder) is effectively responsible for the performance of its retail agents. If their retail agent goes 'bust' holding customer monies they have to still honour the client's holiday arrangements regardless of whether they receive money from the agent. So, in the affiliate industry who is the principal, the network or the merchant? If it is the merchant they would still be responsible for paying the affiliate even if the network (eg DGM) went 'bust'. The alternative is that the network is the principal so they are responsible for paying affiliates even if the merchant does not pay them. At the moment neither the merchant or network appear to be accepting principal status meaning the affiliate is always the 'loser'. I suggest this needs clarifying as at some stage an affiliate will lose £'000's and therefore challenge the current situation in the courts.

[Rovers0411]

If there is to be a further mechanism which underwrites payments then it is the affiliate who will be paying for it - by reduced commissions. So, in effect, the affiliates who are careful who they deal with will be subsidising the affiliates who are not?

A Trust Account (as oppossed to bonding via insurance) is not expensive to operate but would protect monies held by networks for merchants and affiliates. Any network operating in this manner would easily recoup costs through the increased confidence affiliates would have in them leading to increased business.

Any reduction in commissions would be kept to a minimum and surely knowing your commission is secure is worth a few £'s? We are not a big affiliate but even so in the last 12 months have lost a 4 figure sum in commissions due to the failure of networks or merchants.

[SteveBramall]

Hero

could the networks not take out credit protection on each of its clients. Those clients that you cannot get payment cover on you could restrict their ability to hold over payments by asking them to pay the network as soon as a sale is complete. The network could them hold this money and not distribute funds until the agreed period is complete?

This would be quite a simple way to provide provide protection for all parties.

We as affiliates cant take this type of action as we are further down the line in terms of payment.

[Hero]

We use credit scores to define the level of financial risk any company presents and we adjust their prepayment as well as their leeway in delaying payments.
Each network is responsible to minimise financial exposure through their merchants, and you have to also keep in mind that if affiliates lose out, we lose out as well.

There is a discussion at the IAB exploring potential solutions to merchants and networks going bust, I would urge everyone to participate in these discussions

thanks

[Rovers0411]

Hero

could the networks not take out credit protection on each of its clients. Those clients that you cannot get payment cover on you could restrict their ability to hold over payments by asking them to pay the network as soon as a sale is complete. The network could them hold this money and not distribute funds until the agreed period is complete?

This would be quite a simple way to provide provide protection for all parties.

We as affiliates cant take this type of action as we are further down the line in terms of payment.

Many networks already have a mechanism in place to allow merchants to pre pay but, as far as I am aware, this is never compulsory. If a merchant is considered a financial risk perhaps networks could make pre-payment complusory? This would protect the network and affiliates in the event of the collapse of a merchant. Maybe at least all merchants could adopt something similar to the 'traffic light' system used by Affiliate Window which at least gives affiliates an indication of the risk of dealing with merchants they promote.

Pre-payment or credit protection would not protect affiliates in the event of the failure of the network. To do that the networks need to operate Trust Accounts or adopt a similar bonding system (ATOL/ABTA) to the travel industry.

[Rovers0411]

We use credit scores to define the level of financial risk any company presents and we adjust their prepayment as well as their leeway in delaying payments.
Each network is responsible to minimise financial exposure through their merchants, and you have to also keep in mind that if affiliates lose out, we lose out as well.

There is a discussion at the IAB exploring potential solutions to merchants and networks going bust, I would urge everyone to participate in these discussions

thanks

Could those credit scores be made available to affiliates? As least they would then they could make an informed decision on which merchants to promote?