Owning a marketing agency comes with many benefits however, like other businesses, cash flow is always an owner's main worry. You may think you have a really strong client relationship and would never expect them to turn around and just not pay or keep pushing the payment day back, but not everyone is really your friend in business. It doesn’t matter how successful a business may look from the outside, the most important factor is how it looks on paper each month. Especially for agencies that may be in a growth phase and operating from tight margins.
One late payment could make it difficult to pay an employee. This article will discuss common causes of late or no payment, usually out of the owner's hands and practical steps agencies can take to protect themselves.
What Is Client Payment Risk?
A marketing agency of any size risks late payment, partial payment or no payment at all. Marketing agencies tend to be particularly vulnerable, as services are often delivered before half or any payment has been made. Most agencies will work on a retainer basis, creating a dependency culture on a few key clients who may be major contributors to revenue. There are times when a client may need to readjust their payment date to fit in with internal processes, and agencies should be able to be lenient now and again. However, if every client did the same, it would put the agency in a difficult position where it could disrupt cash flow. As a result, the agency may face difficulty paying staff. There are also impacts that are less extreme, such as the resources required to chase payments.
Vet Your Client
Signing a new client can be really exciting, however it is really important to know who you’re working with no matter the size of the client. Part of your onboarding process before any contracts are signed should include a vetting process with the client. This vetting process should include a basic due diligence, gathering a range of information about the business’s history and track record of paying their suppliers. It is common for agencies to look past early red flags in the onboarding process but it can save a lot of hassle further down the line. Here are some common warning signs you can look out for in the early stages:
- Requests for unusually long payment terms.
- Reluctance to sign agreements.
- Poor communication around payment expectations.
Strong Contract and Processes
A contract is one of the most important steps in reducing client payment risk, protecting you legally, meaning once the business has signed the contract, they are legally obliged to pay. However, having a contract doesn’t mean it's a good one. Make sure the contract sets out a clear agreement that defines the project scope that the agency is responsible for, and then a clear payment schedule for the client, which includes what happens if payments are late or missed. This is particularly important for agencies that offer a white label service, as payments can get confusing when there is a middleman involved.
Payment processes are another key factor in reducing the risk of payments not being paid, there are a few steps that can be taken to streamline the process.
Conclusion
It is impossible to completely eliminate all client payment risk however by taking some of the proactive steps above can significantly reduce the risk. In case you do find yourself in the position where clients haven’t paid, it is really good to get credit insurance from PH Credit to protect your business.