A large portion of creative agencies and digital agencies work based on projects from their clients.
As these projects can
take many months to complete smart thinking is required to manage cashflows during these periods.
Below are 5 areas where agencies can regularly leak
cash :
1. Do your account managers have monthly sales targets?
Be smart about the timing of sales invoices. Monthly sales targets may be met but at
the expense of cashflow. Premature
invoicing will result in cash outflows when the VAT on the invoice is paid to
Revenue. Apply to return your VAT
returns on a cash receipts basis if your annual turnover is less than €1,000,000 (this
will increase to €1,250,000 from May 2013). Otherwise try keep invoicing as close as possible to the agreed
payment date to minimise the time between your vat return and when the invoice
is paid.
2. Are you waiting until the project is complete to receive
payment?
Regularly it can be the client who causes the delays in
completing projects. Content and
changes to website designs can take time to be agreed.
Establish clear project milestones with your client from the
outset. Invoice at each milestone
and ideally wait for this to be paid before you continue to the next milestone.
3. Are you paying suppliers too early?
Invoices from the media, venues, freelancers, etc.. may
offer little or no credit terms.
If you must pay client outlays upfront arrange for your client to pay
this in advance also. Try to match
client and supplier credit terms as much as possible to improve cashflow.
4. Do you have a budget for each project?
Prepare a detailed expenditure plan for every marketing
budget. Regularly review this
against the actual costs.
Have
procedures in place to act when these costs are exceeding the budget. Can the excess costs be invoiced to
your client?
When you incur an outlay are you prompted to invoice your client for example google adwords expenditure?
Do you have procedures in place to identify any outstanding costs
that are yet to be received?
5. Do you know how much your pitches really cost?
Creative pitches can be costly. Record these costs separately and don’t forget to include
stationery, employee expenses, props and employee hours. Assess all potential pitches to ensure
that pitch costs aren’t higher than the potential revenue if successful.
These are only a few of the areas where we have encountered
drains on cashflow.
Have you any more to add to the list? We’d love to hear how you’ve improved
the cashflow in your agency.
