I started proceedings to recover a bad debt this month. Nothing unusual there, you might say, but it’s the first time I have had to do it in the seven years since I started working as Agency Doctor.
The agency MD’s initial reason for the delay was cash-flow issues, which got me thinking about the critical role that looking after the money plays in a successful consultancy.
Nobody starts in PR because they have a passion for cash management, so here’s a quick overview of what you can do to make sure your bank balance remains robust.
A monthly cash-flow analysis is your starting point: opening balance, money in, money out and forecast closing balance. If you can make sure this includes those big, unavoidable payments – such as corporation tax and VAT – then you’ll have fewer surprises. Just because the balance looks solid doesn’t mean it will stay that way.
Tracking your debtors and being sharp on collecting debts, unpleasant as it might be, is critical. It really isn’t a difficult job to list debtors by the number of days since the invoice was raised – 30, 60, 90-plus days.
When it comes to invoicing, you need to be on it. Make sure the time sheets, if you use them, are complete by the second working day of the month for the previous month, and the invoices raised, signed off and issued by the end of the first week. If you can invoice in advance rather than in arrears, that gives you an advantage.
Winning a new client is a real opportunity to lay the groundwork for good cash flow. Negotiate sensible payment terms and be willing to walk away from those prospects that are unreasonable in their demands. Acting as a bank for your clients should not be part of your agency’s proposition.
When I had my own agency I always asked for a deposit equal to the first month’s fee before work started. This weeded out those that weren’t serious about working with you and meant you had the last month’s fee in hand, so you didn’t have to chase the client for it once the working relationship had ended. Of course, you also benefit from any interest earned on the deposit while you are working with the client.
When I started out in consultancy we charged a mysterious 17.65 per cent on all goods and services that we bought in on behalf of clients. I say mysterious as nobody was ever able to explain how that very precise figure came about.
Not surprisingly, clients are no longer willing to pay for this – but many still expect you to buy in services and materials and take their sweet time to pay the invoice for them. So, to protect your cash make sure you explain that they can pay for bought-in services directly or pay a handling charge.
Managing your cash is not glamorous – it doesn’t win awards and most of us haven’t been trained for it – but it will make the difference between commercial success or failure, so best you learn to be an expert.
Richard Houghton is a business consultant: firstname.lastname@example.org