Agency accreditation

For nearly 40 years, the Newspapers Canada accreditation and credit system has provided a convenient, time and money-saving means for advertising agencies to obtain credit facilities from many Canadian Newspaper Association (CNA) and Canadian Community Newspapers Association (CCNA) members.

In this system, agencies are recognized as the principal, with the understanding they assume full liability for all advertising.

Objectives of Credit Program

The Accreditation and Credit Rating program is an active and fluid process, that unlike the previous annual review allows for changes of rating based on a monthly review of payment records or other information that comes to the association or members' attention. As well, the dynamics reflect the changing credit needs of the advertising agencies as they require.

There are four objectives in the current system:

  1. Risk determination from a performance viewpoint rather than a bad-debt. (i.e.-"When will we be paid" rather than "Will we get paid?").
  2. An active monitoring system that allows for member newspapers' reports to influence the credit rating.
  3. A "credit-watch" system for certain accounts.
  4. To provide a convenient and confidential means for advertising agencies to provide meaningful information in a "one-stop" format.

Explanation of the System

The "Agency Accreditation Application and Credit Agreement" document (see below for attachment) which is sent for completion to all agencies also acts as a Guide to the informational requirements.

Here is an explanation of many of the elements contained:

Definition of an Advertising Agency
"Advertising agency or firm" means an entity providing advertising services for clients on an independent basis and which enters into contracts with daily newspapers in Canada to place or insert its clients' advertising and commits itself to pay therefor. (This differs from the broadcast media who generally have "dual" or "sequential" liability contracts.)

The Credit Rating System
Newspapers Canada credit rating system has five ratings: "AA", "A", "B", "C" and "NR" (not rated). The stronger and more stable the agency, the higher the rating. Prompt bill payment has an important impact on the rating.

Purpose of the "NR" Rating
The "NR" rating is assigned to agencies under circumstances difficult to define under a rating system. This may include a new agency. An "NR" rating suggests that member newspapers conduct their own credit analysis based upon the individual line of credit requested.

Financial Statement Requirements
Additionally, financial statements are required to be provided annually to obtain a rating other than "C". Financial statements are an integral part of the review, especially the accounting notes which may give significant insight into the financial viability of agencies. The financial information provided is confidential and not available to members.

Financial and Other Areas Assessed
The following outlines the areas of the financial statements that are reviewed:

  1. Extent of audit, review or qualification by accounting firm;
  2. The Current Ratio (Ratio of Current Assets to Current Liabilities). The standard used as a threshold for an "AA" rating was typically 1.2:1. This ratio provides sufficient comfort-zone that should the agencies receivables not be rapidly collected or there are bad debts, that the liquidity of the agency is not overly affected. It is important to note that if the ratio was less than 1.2:1 but receivables were collected very quickly, less importance could be given to the ratio.
  3. The Receivables Turnover is calculated. This is a standard DSO (Days Sales Outstanding ratio). However, since sources of revenue can vary amongst agencies as well as reporting of billings or revenues and extraordinary items at year-end, it is difficult to calculate practical ratios. What is equally important, however, is the trend of the receivables over the previous year.
  4. The Total Debt to Worth ratio is calculated. There are wide variations and areas such as parent-subsidiary, shareholders loans, etc. to be considered. While a 1:1 ratio of debt to worth was preferred, this was an area subject to discussion.
  5. Profitability is also considered. A record of operating profits is important to financial stability. Dividends and bonuses beyond the profits earned that reduced net worth are also considered.
  6. The cash flow statement show how changes in balance sheet accounts and income affect cash and cash equivalents by breaking the analysis down to operating, investing, and financing activities. Essentially, the cash flow statement is concerned with the flow of cash in and cash out of the business.
  7. Operating Bank Lines of Credit are assessed. Not used, partially used, fully used or not requested and the extent of the bank's security are among the factors. Loan covenants that could restricted the agency's choices of actions are also considered.
  8. Notes to Financial Statements provide information on a wide range of areas, from balloon payments to bank security and in several instances notes regarding clients.
  9. Payment Record Reported.

For a variety of reasons that range from cash management policies and short-term investment of receivables, to administration problems, to inability to pay before the agency is paid to instances of discrepancies and improper billing, the payment record is a critical area of the assessment.

Many agencies have exceptional payment records and close relationships with the credit departments of the members. This has been a frequent area of discussion with many agencies and through putting the issues on the table, most slow payment issues (other than inability to pay on time) have been resolved.

Additional Information
Supplementary information such as years in business, numbers and quality of clients and business record of principals is also weighed.

The rating assigned is a compilation of these factors. In some cases, the rating is obvious. In others, there needs to be discussions with the agency. Initial discussions regarding ratings are done by the Newspapers Canada Credit Analyst. If additional or current information is brought forth that significantly changes the rating, the rating may be immediately regraded. If an issue cannot be resolved, the agency is invited to bring their case to the Credit Committee.

Rating Changes
Unlike the previous system where ratings were generally assigned for a one year period, the credit rating is subject to immediate reassessment following receipt of new information or a change in payment patterns. It is the policy of Newspapers Canada to inform agency management of a change in an "A" or "AA" rating before release to members.

Other Aspects Of Accreditation Program
There is an annual accreditation fee of $225 plus applicable tax.

Accredited advertising agencies will be shown in CARDonline, a service of Rogers Publishing Limited. This adds a degree of credibility for buyers and media planners.

Newspapers Canada also hosts an annual Credit Conference for all media, credit and finance representatives and has also produced a three-part webinar series to educate those dealing with credit services.

 

Updated November 26, 2012
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Contact:
Ross Edmunds
Credit Analyst
416-923-3567 ext. 222;
E-mail: redmunds@newspaperscanada.ca
 

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Agency Accreditation Application and Credit Agreement 2013.pdf286.18 KB