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IMPROVE CASH FLOW 7 mins 11 Apr 2023 by Kasey Clark
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Demand for marketing agencies, whether advertising, digital or social, continues to go up. Despite this, a lot of agencies are faced with longer payment times for their services. This impacts cash flow and ultimately curbs agency owners' ability to run a sustainable business.

If this sounds like you, and your agency is struggling to get paid on time, keep reading. In this article, we'll explore why many marketing agencies grapple with late payments and how you can overcome this issue.

Why do marketing agencies struggle with late payments?

Inefficient processes and payment terms, along with financial constraints, are just some of the factors that can lead to late payments. We explore these things in detail below and discuss practical strategies to help you end late payments and maintain a healthy bottom line.

Specifically, we’ll cover the following challenges:

  • Inaccurate invoicing.

  • Inconsistent billing practices.

  • Lack of stringent payment terms.

  • Clients' financial constraints.

1. Inaccurate invoicing

One of the primary reasons for late payments is inaccurate billing. Invoices can contain errors, such as incorrect amounts or missing payment details, which can delay the payment process.

Research from the Credit Research Foundation shows that 61% of late payments result from compliance and admin problems such as incorrect invoices.

Beyond billing errors, the lack of clarity and transparency in invoices can cause confusion and misunderstandings, leading clients to question the charges and delay payment.

How to address inaccurate invoicing

You can address invoicing inaccuracies with proper data collection and record-keeping and by adopting accounts receivable software that eliminates manual processes. If you're typing or filling out each invoice by hand, you're much more likely to make errors that cause payment delays.

Opt to use a solution like Ignition, which connects to accounting software like QuickBooks Online and Xero to automatically raise invoices and help with automating accounts receivable.

When a client accepts an Ignition proposal, Ignition automatically creates and sends invoices with the due date you set, according to the fee schedule in your client proposals. Billable service lines in your client proposal are translated to line items on the invoice to reduce errors.

You can also use detailed client intake forms to ensure you're gathering the correct information from the get-go. Create your client intake form in Typeform and use Zapier to push the details captured from TypeForm into Ignition. This quick read and accompanying video on Automating your client onboarding shows how easy it is to set it up. By developing workflows like this, you can reduce the risk of invoicing mistakes happening and eliminate repetitive operational tasks that can slow your business down.

2. Inconsistent billing practices

Marketing agencies often have different billing practices for various clients. While it's good to be flexible to your client's needs, the lack of consistency can make it difficult to keep track of payment terms and schedules.

If you can’t predict when payments will be received, it’s challenging to forecast cash flow accurately. This can lead to cash flow problems, which can impact your ability to pay your bills and meet your financial obligations.

Inconsistent billing practices also create confusion and misunderstandings between you and your clients. They may be unsure of the amount they owe, the payment terms, or the due date, leading to disputes and delays in payment.

How to address inconsistent billing

You can address billing inconsistencies by implementing standard operating procedures (SOPs). Document your processes step by step, and see that your team adheres to them.

Ignition allows you to build your own comprehensive service library to standardize your service descriptions, pricing and billing schedule when creating client proposals. That way you'll have consistency in how you bill clients for various services.

It's also important to consider your client's accounts receivable policies. Some companies may ask you to bill them on an hourly basis, while others prefer monthly retainers.

Staying on top of multiple invoicing policies requires you to use flexible billing software.

Take Ignition, which has a wide range of flexible billing options catering to different business models. When creating proposals, you can bill clients for recurring or one-off project work, bill by the hour or a fixed fee, and bill weekly, monthly, quarterly, or even annually. You can even collect a deposit upfront, so you have a versatile solution that helps you cater to your agency as well as clients' needs.

Related article: Download the 8 Step checklist to eradicate late payments and boost cash flow with Ignition. Start optimizing your billing processes and getting paid on time!

3. Lack of stringent payment terms

In some cases, agency owners don't have stringent payment enforcement policies in place. Without clear payment terms and consequences for late payments, your clients won't be compelled to pay by the due date.

How to address the lack of payment enforcement

Establish policies that ensure you get paid early or on time. One of the best ways to do this is to capture your client’s payment details as part of the agreement, and require partial (or full) payment before services are rendered. This helps mitigate financial risk by allowing you to secure payment before taking on projects.

Ignition lets you request payment details upfront when a client signs your proposal to give you peace of mind you’ll get paid and minimize the chance of non-payment. You can collect a deposit upon proposal acceptance and automate the billing and payment collection process based on the billing and fee schedule. The platform enables you to invoice clients automatically by connecting Ignition to QuickBooks Online or Xero and even send automated reminders when a bill approaches its due date.

By setting up the system to automatically withdraw funds by a specific date, you can eliminate the need to ‘chase’ payments.

That's what Marie Greene, founder of Connected Accounting, did with the help of Ignition.

"We have zero accounts receivables, literally none. I used to have to go chase people – close to our annual calendar year end, I would have to call everyone and say, 'you haven't paid us’,” she recalls.

"Now, we charge our clients the first of the month – it's automatically withdrawn from their bank account or from their credit card account. If the payment doesn't go through, we alert them. We don't start the work until it does."

If you're unable to withdraw funds automatically and if late payments persist, you could enforce penalties and withhold services until outstanding balances are paid. By setting clear boundaries and consequences, you're able to demonstrate your commitment to prompt payment and encourage your clients to pay their bills on time.

Taking these steps will help you maintain a healthy cash flow and reduce the risk of financial losses. Plus, these practices foster more responsible and respectful relationships with your clients, assuring that all parties adhere to their contractual obligations.

4. Clients' financial constraints

Economic downturns, cash flow issues, and budget limitations can lead clients to prioritize other expenses over marketing services. In these instances, you may be forced to wait for payment until your clients' financial situation improves.

How to deal with financial constraints

If your clients are facing financial woes, find a way to make it easier for them to make payments. While not ideal, implementing payment plans and offering compromises will help you get paid. It can also build goodwill; when clients see that you're willing to work with them, they're more likely to continue doing business with you.

As for what the arrangement will look like, it all depends on your business, the amount owed, and the client's financial situation. Some of your options include:

  • Offering payment extensions and giving clients more time to pay by extending deadlines or renegotiating payment terms.

  • Implementing payment plans, where payments are spread out over several months.

  • Offering discounts, if the client pays everything upfront.

All that being said, the best way to deal with economic downturns is to focus on the things you can control. There's no way to predict the economy or control your clients' businesses, so set your sights on actions you can implement in your own company.

A good step to take is diversifying your client base.

Strive to bring in clients from different industries to protect your agency from potential risks. That way, if one area is affected by a downturn, your agency won't be hit as hard. Also avoid relying heavily on one major client, sometimes known as a ‘whale’ or ‘anchor’ client.

A good guideline is ensuring no single client is responsible for more than 40% of your total income. This helps you maintain financial stability and avoid significant losses if a client were to leave or reduce their business with you.

Over to you

Ignition offers a comprehensive solution specifically designed for marketing agencies and professional services businesses to streamline the client agreements , billing, and payment collection process. With its automated invoicing and payment features, flexible billing options, and seamless app integrations, Ignition helps agencies optimize their revenue and cash flow, improve efficiency, and deliver a superior client experience.

See Ignition in action. Watch the online demo and discover how the software empowers you to take your marketing agency to new heights.

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Kasey Clark
Kasey Clark


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Published 11 Apr 2023 Last updated 19 Mar 2024