As a marketing company, your success depends on delivering the right message at the right moment to the right audience. But your survival as a business is much more mercantile, where you need to send out the right invoice, collect the right payment, and ensure that the money received is in the right account before you need to spend it.
Unfortunately, far too many marketers do not prioritize their cash flow management, controlling the dollars flowing into and out of their business. And that neglect can cause all manner of downstream problems to the health—and even survival—of your business. In this article, we’ll take a look at the importance of cash flow for marketing agencies, familiar challenges these businesses might face, and some related best practices.
What is cash flow management?
In more detail, cash flow management describes any of the measures taken by an organization to control, modify, and leverage both incoming and outgoing funds for the benefit of the business. Commonly, these efforts will focus on ensuring sufficient cash is on hand to support day-to-day operations as well as forecasting future financial needs and subsequently fine-tuning current business operations to properly fund them.
It’s important to note that your cash flow is different from your profit or costs, as these figures will include various receivables and non-cash expenses—e.g., amortization, depreciation, and outstanding invoices. However, cash flow only focuses on those funds that are liquid, that can be spent immediately by your business.
Or more succinctly, profit doesn’t pay the bills—cash does.
The importance of cash flow management for marketing agencies
Effective cash flow management is essential for every business. It ensures that you have the funds in hand to pay staff consistently and keep the lights on. It fuels future growth as you take on new markets, products, and projects. It covers investments that optimize your business and drive increased profits. It’s how you move beyond the status quo.
Of course, the service-based nature of most marketing firms and their deliverables adds a layer of complexity to the invoice-to-cash (I2C) process and subsequent spending.
Common cash flow challenges for marketing agencies
Admittedly, nearly every business across every industry will face routine cash flow problems tied to delinquent payments, inefficient accounts receivable (A/R) processes, wasteful spending, pricing challenges, and external economic factors. But marketers will also typically need to overcome more industry-focused hurdles, such as:
- Extended payment cycles: Depending on the length of the projects you take on, you might not actually receive any cash for a given campaign piece of work until several months after the first associated expense has already been paid.
- Seasonal pipelines: Marketing exists in a state of feast or famine, with most of your efforts concentrated towards the end of quarter (or year), and this punctuated workflow and revenue often requires more nuanced and comprehensive budgeting and financial planning.
- Outsourcing costs: Unless you’re a self-sufficient, one-stop shop, you likely work with vendors and freelancers to cover skill gaps or supplement seasonal labor shortages. And in some cases, you may need to pay them before you receive any financial benefit from their work.
- Overreliance on key clients: A diverse client base is ideal, but commonly, marketing agencies end up with one or two accounts that deliver most of their work. This vulnerability, in turn, often requires you to keep larger cash reserves on hand, limiting your fiscal flexibility.
- Scope creep: It’s inevitable that clients will at some point come back with more revisions than agreed upon or other extra-contractual alterations. And the underlying cost of this uncompensated work can quickly add up.
Strategies to improve marketing agency cash flow
Despite whatever financial crosswinds you may be facing, there are fortunately several measures you can take to exert greater control over your realized revenue and expenses. Admittedly, the best practices covered below are not exhaustive, so you’d also be wise to set aside time regularly to review your A/R processes, budgets, and cash flow statements, looking for any bottlenecks or inefficiencies that could be stalling your finances.
1. Tighten invoice and payment practices
Any time wasted in your invoicing, dunning, or payment processing efforts will drag out the I2C cycle for even your promptest clients. So, take measures to streamline these tasks and consider automating as many of them as possible.
Not only will an automation strategy cut out unnecessary wait times and human errors, but these solutions can also process multiple invoices and payments simultaneously in just seconds—far more quickly than your staff. Even better, the sooner you can get an outstanding invoice in the hands of your client, the more likely they will pay you on time or even earlier.
2. Build and protect cash reserves
Given the inconsistent nature of the marketing industry, you’d be wise to design your budgets—at least initially—to build up substantive cash pools to cover these revenue gaps. Ideally, try to have a minimum of three months’ worth of operating expenses set aside, but you may need to increase that if your agency faces increased risk (e.g., a single client provides more than 60% of revenue).
3. Control costs and increase efficiency
Effective cash flow management is just as focused on reining in spending as it is on drawing in funds. So set aside time to routinely review what you’re doing and what is or isn’t working.
Comparison shop vendors and freelancers to ensure that you are getting the best price. As part of your post-mortems, trace your internal production workflows to see if there are any process redundancies or excess review cycles that you can cut out. Audit software licenses and subscribed services, canceling any that you aren’t actively using.
4. Shift to more predictable pricing models
Building a budget—and the underlying A/R forecasting required to do so—can be particularly challenging when you’re unsure how much cash any of your open projects will actually generate. Consider moving away from invoices based on billable hours towards flat rates for your repeated deliverables. Similarly, set up subscription billing or retainers for ongoing services, like social media management, web maintenance, or search engine optimization (SEO).
5. Diversify across markets
While specializing can help your agency distinguish itself among competitors, it places your business in a vulnerable financial position, creating single points of failure that can be devastating. Rather than having one or two primary accounts, try to capture a broader market share that spans multiple organizations across different client sizes and industries (or at least sub-industries). At the same time, consider broadening your pool of deliverables to offer more choices to existing customers and potentially attract previously unreached sectors.
6. Deepen client relationships for stability
Client management means more than just keeping them happy by delivering on time and under budget. Invest the time and energy to build strong partnerships with your recurring buyers. If you can understand and articulate their business goals and needs better than they can, they’ll be much more likely to align their current and future marketing efforts with your agency.
Simplify cash flow management for your agency with Invoiced by Flywire
As previously mentioned, automation can prove pivotal in helping to accelerate and stabilize your cash flow. And you’d be hard-pressed to find a more cost-effective automation platform than our Accounts Receivable Automation software.
Our streamlined invoice workflows and Smart Chasing function will help rein in payment timelines, no matter how complex your billing has become. And if you’ve shifted to an installment- or retainer-based model, we can easily support your subscription billing needs. We’ve even augmented our platform with the global payment capabilities of Flywire software, meaning we can support your transactions in 140 different currencies, letting you tap into new markets without any A/R or tax headaches.
So, if you’d like to drive more cash to and through your business, schedule a demo today.
