5 ways to improve your cash flow
Practical changes that bring cash into the agency sooner.
Cash is the lifeblood of a business. Without it, you risk missing payroll, falling behind on tax and, ultimately, going under. It's also the biggest worry for agency owners.
Growth doesn't make the problem go away. Projects get larger and more complex, payment terms stretch and costs rise.
A good benchmark is at least three months of overheads in the bank. That's the cushion that keeps you secure if you lose a client or get hit by an unexpected cost.
Getting there means managing cash proactively. Look at it weekly, with a clear view of what's coming in and going out over the next three months. Factor in the lumpy payments like corporation tax. And ignore money that isn't yours to keep, such as VAT owed to HMRC or client payments for third-party costs.
1. Reduce your payment terms
Many agencies still work on 30-day terms purely because it's always been that way. Moving to 14 days, 7 days or payment on receipt speeds up the cash coming in. Even if only one client agrees, it's worth asking.
2. Change how you bill
Agree fixed fees rather than billing actual hours, and you can invoice in advance, moving the whole payment cycle forward. On retainers, look at billing quarterly or annually in advance. On projects, aim to invoice up front or in staged payments.
3. Nail down your invoicing process
You've won the pitch. Then the client takes two weeks to sign, another ten working days to set you up on their supplier portal and two more weeks to raise a PO. Suddenly you're six weeks in and haven't sent the first invoice.
One of the simplest, most overlooked ways to improve cash flow is getting invoices out as quickly as possible. That takes an efficient process, agreed with the client at the start.
4. Make paying you easy
Almost all payments are now electronic. Ask for bank transfer as standard and, for recurring monthly services, set up direct debit so the money arrives automatically.
5. Chase proactively
At a minimum, use the automated reminders in your accounting software. But that alone isn't enough. Build relationships with the people who approve and pay your invoices, speak to them regularly and get verbal confirmation of when you'll be paid. Emails are easy to ignore. A call from someone they know is much harder to.