Nick Chandi is the CEO of Forwardly, which helps American small businesses accept and send instant payments 24/7.
The marketing services industry is a force to be reckoned with, consistently showing impressive growth year after year. In 2022, marketing spending in the United States alone shot up by over 9% to nearly $481 billion. And for someone like you running a marketing agency, maintaining a steady cash flow is absolutely crucial for thriving.
As a serial entrepreneur, I know firsthand the importance of having a positive cash flow. Without it, everything can and will come crashing to a halt. For an agency, client payments are what keep the wheels turning smoothly. But while juggling all the day-to-day marketing tasks, it’s easy to overlook one key aspect of cash flow management: the impact of client payment terms.
Client payment terms refer to the agreed-upon terms between an agency and its clients regarding when invoices should be paid. These terms can vary widely, depending on factors such as industry standards, client preferences and the agency’s negotiation skills. Common payment terms include net 30 (payment due within 30 days), net 60, net 90 and upfront payments.
When I approach negotiating payment terms, I understand that numerous factors come into play, and they can be pivotal in determining the outcome. It’s not just about the numbers—I stress the significance of finding a harmonious balance between meeting your financial commitments and accommodating your client’s needs. You need to factor in your own cash flow needs and your ability to weather longer payment cycles.
The Impact Of Client Payment Terms
Extended payment terms or payment delays can disrupt cash flow for 62% of small businesses. I’ve witnessed how the mismatch between accounts receivable and accounts payable can deepen these challenges, leading to cash flow difficulties. If clients are dragging their feet on payments or stretching out their payment terms, while you’ve got bills and employees to pay on time, it’s a recipe for cash flow disaster. The 2023 Marketing Agency Benchmark survey revealed that 13% of agencies listed cash flow as their top concern. That’s significant. Cash flow isn’t just a number on a balance sheet—it’s a vital sign for the health of your agency.
The stress of struggling to cover operational costs or missing out on growth opportunities just because the money isn’t coming in when you need it can affect your financial and mental health badly. Also, if you’re constantly chasing clients because of delayed payments, it could strain those relationships and affect future business opportunities.
To keep your agency’s financial health in check, it’s crucial to get on top of this discrepancy. That means setting up efficient systems for invoicing and payment collection, negotiating payment terms that work for both you and your clients and keeping a close eye on your cash flow projections. This is my number-one piece of advice to small and medium-sized businesses because I’ve seen many businesses go through this. By getting accounts receivable and accounts payable in sync, you’ll not only ease the stress on your bottom line but also pave the way for smoother sailing toward your agency’s long-term success.
Strategies To Better Manage Cash Flow
To tackle late payment issues head-on, I’ve identified several effective strategies to address late payment issues and optimize financial stability for your agency. First and foremost, negotiation is key. Highlighting the mutual benefits of timely payments during negotiations can give a much more positive outcome later on. Ensuring crystal-clear payment terms in your contracts can prevent misunderstandings and disputes. Fine-tuning the invoicing process is crucial. Ensuring invoices are clear, concise and sent out promptly helps streamline operations and reduces the risk of delays.
Next, consider incentivizing early payments. Offering discounts or perks for clients who pay early can significantly expedite cash flow. Maintaining open communication with clients throughout the billing and collection process is crucial. Shockingly, 23% of late payments stem from clients simply forgetting to pay. By proactively reminding them of their obligations and promptly addressing any concerns, you can keep the cash flowing smoothly. If you don’t want to manually keep on reminding your clients, consider utilizing modern payment solutions that offer automatic payments.
Expand your payment options to give clients more flexibility. While traditional methods like ACH and checks can take up to seven business days to process, embracing faster payment options such as instant and same-day ACH transfers can significantly expedite the payment process, ensuring smoother cash flow for your agency. Keep a close eye on your accounts receivable aging report to stay on top of any overdue payments so you can follow up as needed.
The impact of client payment terms on agency cash flow cannot be overstated. As the backbone of your marketing agency’s financial stability, managing payment terms effectively is essential for thriving in a competitive industry. Extended payment terms or delays can wreak havoc on your cash flow, leading to stress, missed opportunities and strained client relationships.
However, by implementing strategic cash flow management strategies, you can mitigate the impact of extended payment terms and ensure your agency’s financial health remains robust. From negotiating clear terms to encouraging early payments and embracing modern payment solutions, you’ve got options to keep your cash flow healthy.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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