In order to run a successful creative business you need to have a decent cash flow. Enter guest blogger, Peter Czapp, director at The Wow Company, a proactive accountancy practice that advises creative businesses. He is also Co-Founder of The Agency Collective, a fast-growing community of ambitious agency owners. When it comes to knowing what the top-performing agencies are doing right now, it’s fair to say, Peter certainly has his finger on the pulse. We caught up with Peter and asked him for his tips on how agencies can improve cash flow and get paid quicker.
We’ve worked with hundreds of agencies over the years, from start-up to £5m turnover. Many of them have plans to grow and nearly all of them will have an issue with cash at some point in their journey. It’s one of the challenges of having to pay your team at the end of each month, whilst your customers might choose to pay you after 90 days (or worse).
Top tips to improve cash flow
The good news is that there are a number of things that you can do to ensure that your agency doesn’t run out of cash as you grow. Here are what the smart agencies are doing when it comes to managing their cash:
- Ask for deposits – Do not start work on a project until you have been paid a deposit. If the client is not willing to work in this way, walk away. They will only be a nightmare further down the line.
- Staged payments – Split the project up into its key milestones and look to invoice regularly throughout. Don’t leave a massive payment to be made at the end of the project.
- Reduce your payment terms to ‘by return’ – If you give 30 days credit, you cannot start asking for the money for 30 days. This is crazy – it is the banks that should be lending to businesses right now, not you! Change your payment terms on invoices to ‘by return’ and you’re then able to ask for the money sooner.
- Be upfront – State your terms in your pitch document. It won’t stop clients trying to negotiate, but at least you can start the discussion on your terms, not theirs.
- Retain leverage – Don’t send the website live or courier the new branding over to the client until they have paid for it. Once the project is completed, you’ve got no leverage.
- Have a system for getting cash in – Review your debtors at least once a week and allocate time to make phone calls to get the cash in. If you’re not comfortable doing it, find someone that is.
Tools of the trade
As well as these practical tips, many agencies are harnessing the power of technology to help them manage their cash flow. Here’s what the smart agencies are using right now to improve cash flow:
- Xero – 61 per cent of agencies in the UK are now using this accountancy solution, which means that the 39 per cent that are not are at a distinct disadvantage. Click here to view how Xero + Streamtime will change your life forever.
- Spotlight – A simple reporting & cash flow forecasting tool that will take the guesswork out of managing your cash.
- Chaser – Set up personalised email chasers for clients that need a little extra nudge to get their cheque books out! Chaser automates what was once a manual task, which means that you can get paid while you sleep.
- GoCardless – Direct Debit just got a lot simpler thanks to GoCardless. More and more agencies are realising that there is no better way of collecting cash from clients.
- MarketInvoice – Allowing agencies to raise funds in 24 hours against unpaid invoices.
If you’d like some expert advice on how you can improve cash flow, please get in touch with Wow via their website: http://thewowcompany.com