8 Effective Cash Flow Management Tips for Marketing Agencies

Omar Visram
8 Effective Cash Flow Management Tips for Marketing Agencies
Table of Contents

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Marketing and advertising agencies can easily get affected by the economic downturn. When clients want to reduce their costs, one of the first things they'll look at is their marketing or advertising budget. Because of this reason, it is essential to manage your cash flow in anticipation of possible economic downtimes to withstand slower periods.

There are two main strategies for managing cash flow; increasing cash inflow and reducing cash outflow.

How to increase cash inflow

One of the simplest ways to improve your cash inflow is to find ways to manage your accounts receivable processes better.

1. Invoice promptly

It makes sense that the faster you get your invoices to your client, the quicker you will get paid. Send out all of your invoices immediately after completing work and use digital invoices instead of physical ones to save time and expedite the process further.

It is also vital that you make sure your invoice breaks down each line item and has all the necessary payment information. This will reduce the likelihood of a client having questions and therefore delaying payment. Ensure that you have the correct contact information for all clients before work begins and double-check that invoices are being sent to the right person.

2. Automate Invoice Reminders

If you don't make it a habit to follow up on late invoices promptly, your business stands to lose out. When clients are overdue making payments, your cash flow suffers. One of the best ways to manage overdue payments is by initiating a process where all outstanding invoices are followed up at regular intervals. Notices can be automatically sent out to clients, and you can even send out reminders of upcoming payments a few days before invoices are due. 

3. Use pre-authorized debits to collect payments from clients

You may feel inclined to offer your clients many different payment methods to make payment easiest for them. However, accepting cheques from your clients can affect your cash inflow. 

Cheques can take a long time to arrive at your business and can take a while to process as well. Also, credit cards pose a problem as many companies charge a 2.9% processing fee on all payments. For large invoice amounts, this processing fee can be pretty hefty. To avoid these issues, you can use pre-authorized debits to collect payments from your clients. 

Numerous programs are available that can automate the process, automatically debiting your client's accounts and depositing the funds owing into your account. Proper authorization is requested before each withdrawal, and your client can quickly approve each payment with the click of their mouse. 

There is never the need to sign and mail cheques or go through the process of dealing with credit cards.

How to reduce cash outflow

Proper expense management and detailed budgeting plans can go a long way towards minimizing your cash outflow and keeping money in your pockets, where it belongs.

1. Track your expenses

If you don't track your expenses, you will never have proper visibility of your cash flow and overall financial health. Bookkeeping is key to cash flow management.

There are many expense management and time tracking tools that can help you track your expenses properly. Dext Prepare is an expense management tool that can be used to track overhead, billable, and non-billable costs. You can also utilize time tracking tools like QuickBooks Time to ensure all billable hours are recorded and billed to your clients correctly. This will give you a much clearer picture of your agency’s expenses and when they are due. 

2. Monitor your cash flow regularly

Even if your revenue numbers are substantial, it doesn't necessarily mean that your business is doing well financially. You might find it hard to achieve a sustainable, positive cash flow if your agency is incurring more expenses despite your growing revenue. 

Because of this, you should analyze your cash flow regularly to identify your upcoming expenses and whether your agency has sufficient working capital to meet its obligations. Monitoring your cash flow regularly can help you spot potential cash flow issues and also plan for growth opportunities. 

3. Build a cash flow forecast and a budget

A cash flow forecast is an essential tool for your agency. It gives you visibility on what your inflow and outflow of cash will look like within a specific period of time.

Your agency should have a long-term forecast that looks at the following year and a short-term forecast that takes an in-depth look at the next three to four months. Having these forecasts will allow you to spot cash flow issues ahead of time.

When you anticipate a slow season, you can look at your expenses to determine areas where you can save money, such as reducing your staffing. Or, you can set aside funds from busier seasons to cushion the slower ones.

You can also develop a rolling budget that can help you plan when and where you should spend money on your business. This will give you a clear understanding of your fixed and variable expenses and when payments are coming due, giving you insight into how much working capital you need in the bank to pay these obligations. 

Regularly reviewing your budget and comparing it to your actual numbers can allow you to see where you are over or underspending and where you may be able to trim excess expenses such as unnecessary subscriptions or travel.

4.  Develop a spending policy for employees

For many agencies, employees are required to travel to meet clients. They may also incur other expenses on behalf of the business, like purchasing office supplies or taking clients out for meals. One of the best ways to manage these expenses is to develop a spending policy. 

Establish spending limits for all costs and make sure employees are aware of these limits beforehand. Have employees submit these expenses before the end of the month so that you can pay them as they come in, and you don't have to pay out a large sum of money all at once.

Expensify is one of the best tools to manage employee expenses and reimbursements. This program allows you to set detailed spending policies on the app and gives employees the benefit of submitting their expense reports online easily.

5.  Outsource non-core activities

Salary is a major expense for agencies, and one of the best ways to reduce cash outflow is to outsource. For non-core business activities like bookkeeping and human resources, outsourcing can save you a significant amount of time and money

Since these don't often require a full-time in-house position, hiring a permanent employee to complete these duties doesn't make sense. Outsourcing can help your agency reduce payroll expenses as there won't be the need to pay CPP, EI, vacation pay, and other benefits.

Managing both your cash inflow and outflow can make a significant difference in the financial health of your business. It can help you withstand times when business is slow and plan for periods of growth as well. Effective cash flow management starts with accurate, timely bookkeeping.

If you are looking for reliable bookkeeping support, contact us today. Our team of professional bookkeepers and accountants have the knowledge and experience to keep your marketing agency’s books current and equip you with the financial data you need to take your business to the next level.

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