How to Collect Cash Faster for your Business
One of the biggest financial challenges facing creative agencies and professional services firms is managing cash flow, especially when dealing with high labor costs and project-based work. For these types of businesses, employees are not only the biggest asset but also the largest expense. Yet, even with talent that delivers exceptional value to clients, many firms struggle with a simple yet critical task: getting paid quickly. Slow collections put pressure on cash reserves and make it challenging to meet payroll and other essential obligations.
This cash flow conundrum isn't exclusive to creative agencies or professional services. Any B2B business—and even some B2C companies—that delivers its products or services before receiving full payment faces similar issues. The nature of project-based work, along with extended payment terms and unexpected delays, can create significant stress on cash flow. In this blog, we'll explore strategies for speeding up cash collection, giving your business more breathing room to cover high costs and grow sustainably.
Who's In Charge
This challenge isn't solved by one person or one department alone. Improving cash flow requires adjusting your business practices, and it involves collaboration across different teams. It needs to be directed from the top across departments. Your accounting team plays a key role in streamlining invoicing and collections processes, while your operations team can help ensure that projects are completed and billed on time. In some cases, addressing cash flow issues might even require a change in your business model, such as transitioning from hourly billing to fixed, recurring pricing. By working together, your entire organization can help create a more predictable and healthy cash flow.
Tactics for your Operations Team
You can't collect cash faster if the invoice doesn't go out. The operations team plays a critical role in the the process to ensure accurate invoices are prepared and generated timely. They also play a critical role in managing the customer relationship and should be comfortable discussing billing-related matters.
If you have a creative team, they may have an allergic reaction to discuss financial matters with clients. If that is the case, you'll need to have someone in operations that can handle this task. Having your accounting team interact with your primary point of contact is not a good idea. Utilize your accounting team to talk to your customer's accounting team.
Here are the tactics your operations team should be taking to expedite the cash receipts process.
Discuss Payment Expectations Upfront: During project kick-offs, establish clear expectations with clients about payment terms and schedule. Although avoiding discussions around payment may be a buzzkill when your just kicking off a new business relationship, there are ways to address the topic in a positive way. Here's an example:
"As we kick off this project, we want to make sure everything runs smoothly, including the financial aspects. To keep things clear for both of us, let’s go over the payment terms. Typically, we ask for [payment terms, e.g., a deposit upfront and the remaining upon milestones]. This helps us ensure that our team can stay focused on delivering great results for you without any interruptions."Communicate Milestones Clearly: Clearly define project milestones to the client and ensure these are met on schedule. This helps trigger timely invoicing and payments.
Send Proactive Project Updates: Provide regular project updates to clients to reinforce the value you’re delivering and keep payment top of mind. Most problems can be prevented or mitigated up front through communication. Doing whatever you can to foster a two-way communication channel helps build trust in a relationship and makes those billing or payment discussions a little easier on all.
Manage Scope Creep: Ensure that any changes to the project scope are documented and billed accordingly. Uncontrolled scope creep can delay project completion and extend payment timelines.
Ensure Timely Project Completion: Work closely with project managers to ensure that projects are completed on time, minimizing delays that could impact invoicing.
Coordinate with Accounting: Keep the accounting team informed of project progress so they can invoice immediately upon milestone completion if they generate invoices. If operations generates the invoices, ensure the system automates the process if getting that invoice into the accounting system so it's on their radar.
Tactics for your Accounting Team
Your accounting team shouldn't be there simply to create month-end financials. They should take an active role in helping the business succeed. There are several tactics they should be taking to help. Working in tandem with your operations team and perhaps your customer's accounting team should help ensure everyone is on the same page and the process functions effectively.
Set Clear Payment Terms: Clearly communicate payment terms upfront, and consider shortening payment terms to encourage faster payments (e.g., from Net 30 to Net 15). Ideally, these were already communicated during onboarding. Make sure the terms are clear to the recipient.
Send Invoices Promptly: Issue invoices as soon as a project milestone is completed. The sooner the invoice is sent, the sooner payment can be received. Some businesses have the accounting team generate and send, some have operations send, and some have operations generate and accounting send. Either way, hit Send as quickly as you can once the invoice is approved. Nobody should be sitting on approval or taking their time to generate or review. Make "quick" a habit.
Automate Invoicing and Reminders: Use accounting software to automate invoicing and set up reminders for overdue payments to ensure clients are regularly notified. Most cloud-based accounting systems allow for automatic reminders. Use AI to help craft friendly but direct reminder copy that becomes increasingly serious as time goes on.
Regularly Review Aged Receivables: Proactively provide operations a listing of invoices by customer that are Current, 30, and 60+ days out weekly. Identify what actions should be taken by whom and keep communicating. Find out why an invoice is late as it may be related to work product (operations) or by your customer's cash flow (accounting).
Offer Multiple Payment Options: Make it as easy as possible for clients to pay by offering multiple payment methods, such as ACH transfers, credit cards, or digital payment options. Encouraging ACH is preferred as that's typically the cheapest option. Allowing a customer to pay by credit card allows them to get "points" and may make some business owners happy. Doing so means roughly a 3% fee for your business to get paid quicker. That may be a good trade off. Consider passing the credit card fee along to the customer as that 3% may still be worth it to them for those points.
Implement Early Payment Incentives: Offer discounts for clients who pay early, such as 1-2% off if they pay within 10 days. Just like commissions motivate a sales rep to take perform the actions you need them to take, saving another business money may motivate the behavior we want. Timely, or even better, early payments.
Charge Late Fees: Introduce and enforce late fees for overdue payments to incentivize clients to pay on time. Not all billing and accounting systems automate fee. You may need to switch to an app that is focused on billing that has this feature if this will be a common thing.
Properly Account for Deferred Revenue or Work-in-Process: Without systems in place, this will be very hard or impossible to account for. Take a cost-benefit approach to how accurate you can get here. If you're collecting deposits or retainers up front you'll need to know what those balances are each month. Your operations team will too, so using a software system that can track these things is imperative.
Considerations for Your Business Model
Changing your business model can be a powerful way to facilitate faster collections. We're not suggesting that cash collections is the #1 priority for your business over providing exceptional value to your customers but there may be ways to productize what you do where you can collect faster while offering a superior solution that you were before.
Nobody enjoys seeing an hourly invoice for time previously spent and how much that costs. I'd wager a guess that almost everyone things whatever you and your team did should have taken less time that it actually took. How does a non-accountant know how long it takes to perform a month-end close? They wouldn't know what tasks a month-end close includes in the first place. The same goes for legal work, SEO research, or the creative process. They may prefer to see a fixed price up front than a detail of hours at the end.
Not only does a monthly, fixed price simplify the terms for your customer and your business, it adds predictability and timeliness to cash flow and, as a biased accountant, easier to account for.
Automation and Systems
All of these tactics require clear communication and the right systems. These systems may be all-in-one applications or a tech stack. The way we look at the accounting stack is that the accounting system is the base platform. Depending on what the customer is in the business of doing, you'd stack on great applications that do that thing very well. Most all-in-one solutions do nothing well.
If you are in the business of project-based work, you need to have a great project-tracking and invoicing system. Invest in that system as it is what keeps your business doing what it does best.
Most cloud-based applications integrate so the process that involves collecting cash faster is automated and can scale. The inability to scale the invoicing process is the #1 challenge we see with creative and professional services customers. This kills their ability to - collect cash fast.
Conclusion
Managing cash flow is an ongoing challenge, especially for businesses that rely on project-based work and face high labor costs. By implementing the right strategies across your operations and accounting teams, you can streamline invoicing, communicate effectively with clients, and ultimately speed up cash collections. Consider making adjustments to your billing model and investing in automation to make the entire process smoother and more predictable. With the right tactics in place, your business can improve cash flow, reduce stress, and focus on delivering exceptional value to your clients.
