There is an insidious trend festering between digital agencies and their clients that’s only getting worse year over year. But because it’s so widespread, many agencies and consultancies view it as the norm.
This phenomenon can make it hard for agencies to pay their bills and their employees. It can dampen cash flow so dramatically that it becomes impossible to invest in sales and scaling services, which leads to stagnation and frustration. It can strain client relationships and ultimately make it easier for particularly ruthless customers to never pay their final invoices for services rendered if a contract terminates early.
We’re talking about long payment terms.
And when it comes to payment terms, If you’re a digital agency owner or CFO, you probably belong in one of two camps:
You’re smiling smugly because you know exactly what we’re talking about and already solved this problem by procuring ideal clients, instituting ironclad contracts, and making payments easy, automated and digital. You always get paid inside of Net 30, invoices are seldom past due – and when they are, you jump on it with the swift confidence of an Olympic pole vaulter. Congratulations! You are amongst only 6% of digital agencies. You can close this tab and bounce knowing that you’ve finessed a near-miracle in your business.
For the rest of us: of the 94% of digital agencies get paid in 30 days or more, a whopping 62% of that group wait over 60 days from sending an invoice to get paid… yikes.
If you’re in the 94%, keep reading. We’re about to lay some epiphanies down. Ready?
(By the way, if you’re not here for epiphanies and just want answers: scroll down to the bottom of this page! We have those, too.)
Just because most of your clients abide by Net 60, Net 90, or even Net 120 payment terms doesn’t mean that’s not an issue. Waiting that long to receive cash for services that have already been rendered may not be forcing you to close up shop, but it still doesn’t spell what’s best for your business.
At best, you’re doing fine. You can pay all of your employees, contractors, and vendors – and hey, maybe even yourself. But what does your growth potential look like? Do you have the cash on hand to hire a new account manager, to pay for time-saving SaaS automations, or to scale?
And what about the stress cycle that many agencies face, like frantically seeking new business every month to stay profitable? If you’re fortunate enough to keep procuring new clients and banking in their set-up fees, then all of that constant onboarding still makes you and your team inefficient and burnt out.
In the worst cases, long payment terms can cripple your bottom line.
Not getting paid in a timely manner, especially if your customers’ payment cycles have grown longer than the baseline your business was used to. In turn, this may be putting pressure on you to make cut-backs, lengthen your own terms with vendors, or to extend your credit. Ultimately, all of that unrealized revenue hanging out in your Aging Accounts Receivable (A/R) is like the grim reaper for a business that is otherwise doing everything else right.
And by the way…
2. You are not a bank.
When your customers take an entire fiscal quarter to pay for the services you provided all those months ago, they’re effectively taking out an interest-free loan against your business.
And it works out surprisingly well for them. Back in 2015, Procter & Gamble added an estimated $1 billion of cash flow by introducing a 75-day payment period for suppliers.
What’s more, this practice becomes more widespread during times of economic uncertainty. There was a wave of big businesses extending their payment terms with their smaller vendors in the 2008 recession, and it’s now being touted as part of 2020’s “new normal.”
Which doesn’t seem fair, given that financial down-turns can drive your business to accrue interest and debt when you’re pressured to turn to the bank yourself.
You may be a generous business owner who wants to lend a helping hand to their customers where they can, and that’s great… But the primary obligation you have to protect cash flow is within your own business.
3. You are worth it.
Now you may be thinking, if almost all of my peers have accepted this paradigm, what choice do I have?
My friend, there is always a choice. And in this case, the choice comes with an action plan (but more on that in a moment).
First, remember this: Your services are the life-blood for every single business that contracts with your agency. Without the traffic and leads you generate for your clients, their sales would stagnate, and their revenue would crumble.
You provide them with something incredibly valuable that they are not equipped to handle on their own: the magical wizardry of filtering through the billions of people on the internet, finding and speaking directly to your clients’ perfect avatars, and persuading those audiences that their products or services are worth spending their hard-earned dollars on. Your expertise empowers your customers to take the guesswork out of marketing, to stop sinking their own cash into advertising that generates no ROI, and instead make their businesses actually viable.
If you haven’t for a while, stop now to think about how critical that role is. Good marketing is the foundation for your clients’ success and survival. Don’t you deserve to get paid well & promptly for that service?
Are you ready to become the master of asserting contract terms and conquer your cash flow once and for all? We’ve laid out a step-by-step action plan for you – the very same one that worked in our own thriving digital marketing agency, BNG Design – and we’re offering it completely free in this 5-part email series that covers:
- Setting your own payment terms (contract, invoice)
- How to have the conversation
- Credit Policies, if you must.
- Enforcement (getting your clients to follow through)
At the end of this series, you’ll have everything you need to start instituting Net 30 billing terms with new and existing clients, and the remarkable strategies & automation tools that helped 100 other businesses like yours drop their average time-to-get-paid from 48 to just 1.4 days after sending an invoice (seriously).