Working capital is often an issue for agencies because of the cycle of revenue and expenses. To do the work a client needs, agencies must spend money on vendors and equipment. This can include everything from influencers to freelance designers to production equipment. Often, the revenue from a client comes in after these vendors have already been engaged creating a need for stable cash flow. While cash flow has a lot to do with the actual business volume an agency works with, there are a few key tips and tricks that can help your cash flow stay consistent.
1. Pay Attention to the Terms of of Your Brand Agreements
When securing new clients you have the opportunity to lay out payment timelines and markers. Many agencies choose to align payment separate from actual deliverables. This often means that brands will pay you before you send over the deliverables, giving you cash to complete that deliverable. You can also choose to adopt a “package system” where your agency can charge consistent prices for a very specified list of services. This opens up the option of billing monthly since the risk of a budget creep is low. No matter the pricing strategy your agency uses, it is important to observe the payment terms. Often these terms are net 30, net 60, or net 90. If a brand's payment timeline is net 90, that means that the brand has 90 days to pay your agency’s invoice. That leaves a lot of time with no cash and should be avoided or, at the very least, carefully considered.
2. Time Your Vendor Terms Correctly
Once you know the payment timeline for your client agreements, you can time your vendor payment contracts appropriately. Set the terms of vendor agreements to align with incoming cash. This way you’ll never find yourself struggling to accumulate cash and pay a vendor invoice. And the more working capital you have on hand, the easier it is to work with the best vendors and eventually raise your agency's prices and reputation. Check out this post, Why Cash Flow is King for Scaling Marketing Agencies, to learn more about scaling an agency.
3. Micro Loans
Micro loans are small loans, often delivered through peer-to-peer or government programs, typically used to help small businesses. The Small Business Administration provides micro loans up to $50,000 which can be used for any business expense except paying off debts or buying commercial real estate. Depending on the size of your agency, micro loans can be a valuable option to get cash in a pinch. Pay careful attention to the terms and conditions as some lenders may hide fees or structure payment terms in a way that may not be viable for your business.
4. Practice Smart Business Banking
You can earn cash through a business bank account or a cash back business credit card. A business savings account will deliver small returns on interest, but cash is cash. Depending on the volume in your bank account and your specific bank, your bank account interest could add up and benefit your agency greatly. A cash back business credit card also provides opportunities to earn cash on your expenses. Many banks offer credit cards with extremely generous cash back programs that can help to just slightly offset your expenses and improve cash flow. Make sure you can pay your credit card amount off fully each month, though.
5. Lumanu EarlyPay
Not to brag, but this might just be the most consistent and stress-free option to get cash immediately upon sending an invoice. With Lumanu EarlyPay, you don’t need to worry about brand terms or payment timelines. Simply sign up for Lumanu, send an invoice and request EarlyPay. Once approved, you’ll get paid instantly. Easy as that. No more worrying about cash flow or delayed payments to freelancers and vendors.
Interested in learning more about Lumanu EarlyPay? Contact us!