Improve Cash Flow Right Now With 3 Easy Ways
Want to improve cash flow for your agency? An increase in cash flow for your business can create opportunities with more clients, building your business and getting your digital agency’s name out there.
In this post, I cover:
- Reasons your agency cash flow might be suffering.
- 3 things you can do to immediately improve cash flow.
One of the major causes of stress and headaches when I ran my digital agency was the unpredictable cash flow. I felt like it was one major component of the business that was out of my control. Over the 12 years of running the agency, though, I developed a few ways that significantly increased our cash flow.
Here are the 3 EASY things you can do to improve cash flow right now!
1. Change Clients’ Payment Terms
Everyone knows typical agency payment terms are 50% upfront and 50% upon completion. Problem is, when the client causes delays – changing direction, stalling on approvals, etc. – this causes a delay in project completion and a you’re stuck holding the bag. This makes is really diificult to predict revenue.
But what can you do – it is what it is, right? Wrong! You can structure your payment terms in a way that benefits you and your client.
Rather than settling for the 50/50 split payment, change the terms to this:
- 50% upfront, upon approval your proposal
- 25% upon concept approval or “X” date; whichever comes first. (Make sure “X” date is defined in the project timeline and keeps expectations reasonable.)
- 25% upon project completion or “X” date; whichever comes first.
By collecting funds midway through the project you are able to accurately predict your cash flow. You are also incentivizing the client to keep the project moving by having specific dates called out in your payment terms.
When I implemented this strategy at my agency we had some projects 100% paid that were only 35% complete. Best of all, it created a stable way to improve cash flow situation by being able to accurately predict revenue.
2. Include Details On Invoices
Your invoice might seem clear to you since you’ve worked on a particular project for so long, but it’s not always clear to the client. Remember your technical skills level is different than the clients, so don’t assume they know what they’re being invoiced for…. Assume nothing. Every invoice should include a detailed description of the what you’ve done, when, and for whom.
Do not send a $10,000 invoice for “services rendered”. That invoice will sit on your client’s desk while they figure out what to do with it. This could take days or weeks. Meanwhile it gets buried until you make that awkward follow-up call. Then it gets approved, sent to account payable who may take 30-60 days to cut checks.
Instead, provide a detailed description of the work you’ve provided and be sure it matches the proposal or estimate. If there are any overages be sure you call those out on the invoice with the name of the person who approved it. Transparency is key. Also be sure the name of your key contact on this invoice as well as the date(s) the work was performed and a P.O. number or reference, if applicable. This will speed up the invoice approval process and keep you out of their “I’ll Get Back To It” pile.
More is better. You’ll never hear a client complain that your invoices are too detailed. The alternative is sitting at the bottom of the stack waiting 30, 60, 90 days for payment and making those difficult “collections” calls. And making calls like this are one of those tasks that take you away from the real work of growing and scaling your business.
3. Change Vendors’ Payment Terms
The golden rule of business is to accurately manage your cash flow. To do this, a lot of business owners want to their clients to pay as fast as possible, while paying vendors as slow as possible. Sounds pretty unfair but it’s the best way to survive. You can’t necessarily control your receivable but you can definitely have some say in your payables.
Get this, your vendors will work with you on payment terms if you make it worth their while. In order to do that you do one or all of the following:
- Do some research. Know what their competitors have to offer and use that for negotiating. If you can get it for less somewhere else, but you want to work with a preferred vendor then leverage your knowledge to get better payment terms.
- Guarantee a certain amount of business within a specific time frame. Then use the promised volume to negotiate different payment terms.
- Setup automatic payment with a credit card or electronic fund transfer (EFT). When your vendor understands you are “electronically committed” to paying on a specific date, you may find some flexibility on their end.
As an agency owner you know it is crucial for you to have a handle on your cash flow. With these 3 hacks you can have more control, ease of mind and improve cash flow.
You’ll find MANY more strategies just like these in my Agency Playbook. Over the past 15 years, I’ve created and perfected the processes and strategies every agency needs in order to grow and scale. Discover all 12 Systems in the Agency Playbook by clicking here to watch a brief video with more info.
What’s Next For Your Agency?
Now you know the three easy ways to improve cash flow, I hope this encourages you to create the best agency possible. In order to do this, it’s a good idea to ensure all aspects of your business are full functioning to the highest level. By evaluating other areas of weakness within your agency, you can create a better business and improve as an agency owner. And the best thing about it is, I can help you get through all of it.
I can give you support and advice on many topics from what to do when you want to speed up sales processes, ways to increase your business profit margins or how you can build an authority for your agency.
Growing your agency can be a major struggle for any agency owner and I can show you the different phases of growth you will experience, how placing a process for performance based pricing can be the best pricing strategy for your business and the three questions you need to ask yourself to sell more!