The catch-22 of running a creative, digital marketing or ad agency is that it takes money to make money. While it would seem that bringing on more clients would increase cash flow, the challenge is having enough employees available to handle the client work. And if a client quits your agency, will you be laying off those employees? These are only a few of the thoughts that plague the mind of an agency owner when they're trying to get to sleep at night. Cash is king and must be available to keep the lights on, the employees happy and your clients on board for the long haul.
Tackle these four things to solve the cash flow problem of marketing and ad agencies.
Think Positive (Cash Flow)
The statement of cash flows will offer a closer look at operations, debts and investments of your company within a period of time. While your business may not have positive cash flow all the time, it is important for any organization to aim for it to actually stay in business. When expenses or low margins begin to affect the amount of working capital needed to pay short term expenses, tough decisions need to be made to get your financial statements back in the black.
Negative cash flow is when the amount of cash outgoing is more than incoming. Over time, it may be indicative of:
- Lax credit management
- Loss of clients
- Ineffective management of receivables
Cash in the bank is required to launch new campaigns, purchase supplies, pay salaries, hire more personnel and more. Agencies, unfortunately, experience ebbs and flows in sales and could affect cash flow. With a solid budget and regular examination of financial statements, a creative agency should have a clear picture of the cause of negative cash flow.
Credit Management Challenges
If your agency does not have a credit manager to determine the risk and credit worthiness of your clients, it may be time to hire one. Your cash flow problem may be caused by clients who are unable to pay their invoices regularly. When considering hiring a new client - because let's face it, it is a hiring decision - a very important consideration should be if they have the resources to pay for the services they're requesting. A credit manager will:
- Develop a credit policy to follow for new client aquisition
- Review credit worthiness for all new and existing clients
- Underwrite any credit applications for clients
- Set payment terms for client contracts, including if clients should pay up front
Even if your clients are paying a monthly retainer, they may be fighting their own cash flow challenges. Wouldn't you like to know that before taking them on?
Retaining your current client base, and upselling services, is one of the best ways for your agency to stay afloat. Remember that your relationship with your client will make a big difference whether they stick around or not. Communicate often, even when client conversations are tough, and build a human-to-human relationship. Design your sales strategy around attracting the perfect client for your creative services. Set boundaries with your client to prevent out-of-scope work for which you'll never receive payment. A business-to-business (B2B) relationship can be personable, respectful and honest.
Accounts Receivable Management
When your client owes your agency money, you should be paid that money. Period. Managing accounts receivable requires vigilance when setting contract payment terms, invoicing, receiving payments and following up when those payments are due. Clients should know to expect a call if their invoices aren't paid on time. An accounts receivable representative will also have set a collections policy for contacting those who haven't paid their invoices in a timely manner. The collections policy will determine:
- When to contact clients who haven't paid
- Who to contact and how often
- How far past due before the debt is written off or sent to collections
- What third-party collections agency partner to contact when collections attempts aren't working
- If there will be legal action taken after unsuccessful third-party collections attempts
By tuning into your company financial statements, especially your statement of cash flows, you will have taken the first step to improving cash flow for your marketing agency. If you notice negative cash flow, don't panic, but track the trend to determine if there's something deeper that must be investigated. Tackle client retention, credit and accounts receivable management to ensure your cash flow troubles are behind you.
At Enterprise Recovery, we offer accounts receivable management assistance as well as third-party collections and legal services, if the need arises. Most of these services are also offered at no charge unless we're able to recover what's owed to your agency. We are built on B2B relationships so we'll honor yours and your client's relationships too.