How to Improve Cash Flow for Marketing Agencies

Running a creative, digital marketing, or ad agency can be a real catch-22. It takes money to make money, but bringing on more clients can also mean needing more employees to handle the work. And if a client ends up leaving, it can lead to tough decisions like having to lay off employees. It’s enough to keep any agency owner up at night!

Cash is essential to keep the lights on, employees happy, and clients on board for the long haul. But sometimes, cash flow can be a real challenge. Having positive cash flow is essential for the survival and growth of any business. Positive cash flow means that your business is generating more cash than it is spending, which allows you to invest in new opportunities, pay off debts, and maintain financial stability. On the other hand, negative cash flow can be detrimental to a business, as it can lead to missed payments, late fees, and even bankruptcy. That’s why it's important to avoid complacency and continuously monitor your cash flow. 

5 Tips To Get Your Marketing Agencies Finances Back on Track 

To overcome the cash flow problem faced by marketing and digital agencies, here are five tips to get your agency’s finances back on track.

1. Think Positive. The Importance of Positive Cash Flow

Your company's statement of cash flows can offer a closer look at your operations, debts, and investments within a certain period of time. While your business may not always have positive cash flow, it's important to aim for it to keep your agency afloat. Negative cash flow can happen when your outgoing expenses exceed your incoming revenue and can be caused by things like lax credit management, loss of clients, or ineffective management of receivables. But with solid budgeting, cash flow analysis, debt management, and regular examination of your financial statements, you can identify the root cause of negative cash flow and take action to fix it.

2. Address Credit Management Challenges

If your agency does not have a credit manager to assess the risk and creditworthiness of your clients, it may be time to hire one. Clients who are unable to pay their invoices on time may be the cause of your cash flow problem. Financial forecasting is an important element of new client considerations. A critical consideration should be whether they have the resources to pay for the services they require.

A credit manager will:

• Develop a credit policy for new client acquisition

• Review creditworthiness for real new and existing clients

• Underwrite credit applications for clients

• Set payment terms for client contracts, including upfront payments

3. Retaining Clients

Retaining your existing client base and upselling services are some of the most effective actions for business growth. Your relationship with your client will make a significant difference in whether or not they stay with you. Communicate frequently, even when the conversations are difficult, and build a human-to-human connection. Design your sales strategy around attracting the ideal client for your creative services. Set boundaries with your clients to prevent out-of-scope work for which you will never receive payment.

4. Effective Accounts Receivable Management

When your clients owe your agency money, you must be paid. Managing accounts receivable necessitates vigilance. Clients should anticipate a call if their invoices are not paid on time. An accounts receivable representative should establish a collection policy for those who have not paid their invoices and contact them promptly.

5. Diverse Client Base

One way to mitigate cash flow problems caused by client loss is to diversify your client base. Relying on one or two major clients can be risky, as the loss of that client could have a significant impact on your agency's revenue. By seeking out new business and expanding your client base, you can create a more stable and resilient business that is better able to weather the ups and downs of the industry. Additionally, offer a variety of services to your clients to diversify your revenue streams. Doing so can provide a more stable source of income.

Additional Tips and Tools for Improving Cash Flow

Paying attention to your company's statement of cash flows can be the first step toward improving cash flow for your marketing agency. If you notice negative cash flow, don't panic, but keep track of the trend to see if there is a deeper issue that needs to be investigated.

Tesorio's AR Automation platform has a proven track record of helping B2B finance teams get paid faster. In fact, one of Tesorio's customers was able to reduce their average days sales outstanding (DSO) by 25% within the first three months of using the platform. Additionally, they were able to increase their cash flow by over $500,000 during that same time period.

Managing accounts receivable is a critical component of improving cash flow for marketing and ad agencies. An effective solution is to adopt an automated platform like Tesorio's AR Automation platform. Businesses that automate the collections process can reduce the time and resources required to follow up on outstanding invoices. In turn, it will increase visibility into cash flow and get them paid faster.

Tesorio's platform offers features to streamline the accounts receivable process, such as personalized collections workflows, smart reminders, and real-time analytics. Schedule a demo with Tesorio and speak to a finance expert today!