Late payments create unnecessary financial stress, there is no doubt about that, this is particularly true for small to medium-sized businesses and creative agencies. In our article below we would like to share some strategies to encourage prompt payment and help to improve agency cash flow.
This survey conducted by SAGE in 2017 across 11 countries, showed that over 30% of SMEs currently experience or expect to experience delays in payment that will negatively impact their day-to-day operations, payroll commitments and supplier payments. In addition to that 10% of late payments on average are written off as bad debt.
Cash flow is a key concern for almost every business, so it is critical to apply careful thought around how to recover outstanding debt from clients when it happens. I’ve been asked recently a few questions on how to best approach the credit control and collection process without damaging commercial relationships. A key concern is that creative agencies are afraid of being “too pushy” or even coming across as “desperate” when asking for money. They’re worried about the relationship with their clients and that they’ll jeopardise the future of their businesses. I genuinely hope that this article will change your mind on the matter.
You don’t know what the future is going to bring. So putting the right processes in place and being really efficient with sending and following up on outstanding invoices doesn’t have to come at a cost. In the end, you’re responsible as a business owner to ensure that your clients pay you as per the pre-agreed terms and conditions. It’s your business and your legacy that you need to protect.
Be Proactive: 10 Strategies to create an effective credit control process
Let’s get started with a few simple strategies for you and your team that we can easily put in place to encourage prompt payment, will speed up your invoice collections and help you adapt your processes as needed. The intention here is that you will also gain more time to concentrate on leading your organisation rather than spending time dealing with late payments.
1. Make sure that your invoicing process is up to scratch
You must remove any possible friction from your invoicing process and do everything you can to speed it up. Have you ever reviewed how invoices are issued in your business? What’s the exact workflow and timeline between the job being completed and your client being invoiced? I know – it’s not the most exciting project for a business owner, however, now is the time to look into it.
An example of an invoicing process could be as follows:
- Capture the data: your team logs their billable hours into your accounting software (preferably not paper) so your bookkeeper can access it easily.
- Create the invoice: your bookkeeper logs into the software and creates invoices based on the information provided by your team.
- Approve the invoice: you (or your managers) approve the invoice.
- Send the invoice to the client: your bookkeeper sends out the invoices right away, upon your approval.
- Request a confirmation: add this step to your process. Contact your client within a few days of sending out the invoice to confirm the invoice has been received and approved for payment. This is your opportunity to find out if the invoice has been disputed for any reason.
- Start the collection process: if the invoice is not paid within your agreed terms, a follow-up call should follow swiftly.
Setting deadlines for each step to accelerate the whole process is crucial. An invoice can only be paid when issued, so make sure that you keep to the deadlines you set. From experience, I know that business owners and directors don’t always respect their own deadlines as such administrative tasks are not usually their priority.
2. Add a pay now button to your invoice
Make it easy for people to pay you by offering several payment methods. You could accept credit cards, Paypal, Stripe or GoCardless. Even though some of these tools may incur additional fees, they make the payment process very easy and secure for your customers.
According to a study conducted by Xero, adding a PAY NOW button to your invoice gets it paid, on average, 15 days faster!
3. Check the detail
Before sending out your invoice, ensure you know who it should be sent to eg: is it directly to your client or their finance department. Be mindful of your client’s internal proceedures, for example:
- Do they require a purchase order number on the invoice?
- Do they make payments on a monthly basis? This will give you an idea of when you can expect the funds from them which can speed up your invoice payment.
Make sure your invoice is not rejected due to missing information eg: VAT number. I cannot stress enough how important it is, yet so many agency owners do not get this right.
4. Help your team make informed decisions
To say that everyone hates credit control and proactively chases overdue invoices is an understatement.
Having said that, it’s time to get your team involved in the process, if they haven’t been so far. Get them on board and make sure they know their responsibilities when it comes to following up on unpaid invoices. Who in your team maintains the closest relationship with the client you’re chasing? It might not be you, it might be your sales team, for example.
Internal communication with your team is key, discuss the situation regarding each client. Make sure they’re aware of any outstanding balances. Who’s behind on their invoices? Who’s on a payment plan? Put a system in place so that everybody in your organisation is up-to-date, so that you and your team can make informed decisions about future sales.
Avoid making sales to high-risk customers who have a number of long-outstanding invoices already.
5. Regularly talk to your customers
I hope that you regualarly speak with your clients to understand their business challenges, but have you reviewed your debtors’ ledger recently?
Which accounts have been outstanding for an extended period of time (over 90 days)? If you have not checked in with them for a while the end of year is a great time to do so. Prioritise checking in with them and start with those who have had an outstanding balance for a while. You never know, this might also lead to creating other potential opportunities for the year ahead.
6. Negotiate and incentivise new payment terms
If you see one of your customers struggling to pay their invoices, it is good to have a conversation to understand what is going on. They are your partner, and it’s vital to ensure that our relationship remains intact, as far as possible. Take the opportunity of the start of a new year to have an upfront conversation with your customers about overdue invoices and discuss payment arrangements.
There maybe other options, for example, would it be more affordable for them to commit to a weekly or monthly payment plan. You could even take it one step further and set up a direct debit rather than expecting them to pay it to you. Another option to consider is to incentivise early payment and to offer a discount for paying upfront. Encouraging prompt settlements will provide a cash injection to your business and reward your clients with a cost-saving.
7. Can you afford new payment terms?
Carefully think about what payment arrangements you could offer to them? Have you got a reliable cash flow forecast in place so that you can see the impact of possible payment delays on your agency? Are you able to offer instalment plans or extended payment terms at all?
As much as you can, support businesses going through a cash crisis, it doesn’t have to be through letting them delay payments to you. You can offer additional services, advice, or consultation instead.
8. To press or not to press?
Act quickly and decide what kind of approach you will take for the debt collection process, there are two common approaches:
- A softer approach. If you have strong commercial relationships and some visibility into the financial situation of your clients and the sector they operate in, consider waiting to implement more active and formal recovery measures until there is more certainty about the future. Such an approach is only possible if your company is in a healthy financial position and you can afford to agree to more lenient payment terms. It might bring better results once you start following up in the future, this approach will help preserve the client relationship.
- A stronger approach. However, if you don’t put pressure on debt collections, it might seem like a weakness and lead to further payment delays. There is a potential that you will end up at the bottom of your clients’ creditor list. As a result, you may decide to take a stricter approach but proceed with caution as this may harm your client relationship, damage your reputation and may not possibly bring a positive outcome. On the other hand, it will put you at the top of your clients’ payment list and could result in receiving due amounts early.
9. Find your balance
You will want to balance these two approaches and make a decision on a case by case basis, depending on circumstances, available resources and financial condition (yours and your clients).Whichever approach you choose to take to follow up on outstanding debt, it’s crucial you take informed steps immediately. Prioritise your clients, contact them frequently and start following up on outstanding invoices as soon as possible.
Whichever approach you choose, it’s crucial you take informed steps immediately. Prioritise your clients, contact them frequently, and start following up on outstanding invoices as soon as possible. Being polite and professional in your conversations will definitely help you move things along. Emotions play a significant role here. If your customers like you and appreciate your service, they’re much more likely to put your invoices to the top of the pile.
10. Your new business playbook
“There is really only one way to address cash flow crunches, and it’s planning so you can prevent them in advance.”
Elaine Pofeldt, author of the “The Million-Dollar One-Person Business.”
As we approach the end of the fiscal year, I encourage you to take time to review your entire invoicing and debt collection process, from negotiations with your clients, terms and conditions, invoicing to your late payment process.
Create a business playbook for credit control in your agency that outlines how you want things to be done, explain: process, workflows and standard operating procedures. Outline every step of the process to make sure that your cash cycle is managed, and your team members will know what to do to receive the customer payments on time.
“Setting up operating procedures will reduce the risk and likelihood of running out of cash.“
You don’t necessarily have to do it yourself. Speak to your accountant, financial controller, or consultant who will help you design and implement such a system in no time. Of course if we can help then please get in touch.
Next Steps
“Never take your eyes off the cash flow because it’s the lifeblood of your business.”
Sir Richard Branson, Entrepreneur
If there is one thing that we’ve learnt during recent times, it is that we need to be prepared. Researching, reviewing or implementing digital accounting proceedures in your business can be a really effective solution. There are many options available with finetch on the rise to help with invoicing, chasing outstanding debt and cash flow forecasting. If you haven’t thought about it already, now is definitely the time to move towards more digitalisation or review your current provision.
Set up your systems and processes to protect yourself and your agency, make a plan to build a savings or emergency fund, creating a buffer for the more challenging times, as they will happen. Plan to put away at least three months of your operating expenses in a separate bank account to be able to ride out more tricky times. If you make a plan and manage your cash flow diligently, you will have it in place sooner than you think. We’ve experienced COVID-19 and recessions recently and we will definitely experience more challenges in the future. We just need to prepare and be ready to adapt to the changing situation.
Overdue debt and late payments are a common challenge for many marketing and creative agencies which can be time-consuming and uncomfortable to resolve. Sometimes, there is no avoiding it but by putting clear proceedures in place we can help to manage these situations and start conversations early.
If you would like some help reviewing your financial processes and implementing strategies to encourage prompt payment get in touch to arrange a no-oblligation discovery call.
