Do you run into cash flow problems because your agency’s clients aren’t paying you on time?
Ideally, you’d switch to auto-pay and pre-payments. Then, you know you got (or are getting) paid. But that’s not an option for everyone. [Updated: September 2021]
If you still need to send invoices and want to get paid faster, stop sending your invoices as “Due on Receipt”—it’s hurting your ability to collect quickly and consistently.
Fortunately, there’s a better way!
Why “Due on Receipt” doesn’t work for agency invoicing
Why? Because your clients interpret “Due on Receipt” terms as “Pay this when you want to get around to it,” because there’s no specific future due date.
When it’s “Due on Receipt,” you’re at the mercy of the due date your client’s accounting person chooses… which probably is their usual A/P payment terms (e.g., Net 30 or Net 45). “Due on Receipt” just accomplished the opposite of what you intended.
When it’s not a pre-payment, I do Net 7 payment terms. That’s on the quick side.
Most of my clients expect payment at their agency in 30 days. Yet huge clients like Mars are paying agencies as late as Net 120. Fortunately, you’re probably not doing work for them—leave those enormous clients to huge agencies.
The better way to get paid faster: Have an exact due date
In contrast, if you set terms to Net 15 and there’s an actual due date, your client’s accounting person is going to plug that due date into the accounting software, and they’ll get a reminder to run the check (or ACH) to pay on time.
There’s one exception on due dates—initial deposits for new projects. Client can pay those initial deposit invoices any time—but you aren’t going to schedule kickoff or otherwise start working ’til that’s paid. You can set a deadline for those invoices, or leave them open-ended—it depends on how fast you think the new client will realistically pay.
Got a new client that refuses to pay a deposit? Read this about what to do.
Applying this advice at your agency
Want to get paid faster? Your next step depends on what you’re doing now.
- Using “Due on Receipt” currently? Start setting specific due dates for current clients.
- If you already use set due dates and clients pay late, reach out about unpaid invoices sooner after the due date. The squeaky wheel gets the grease.
- To get new clients to pay you faster, put them on shorter terms (e.g., Net 15 or Net 20 instead of Net 30).
- Consider switching clients to auto-pay and/or pre-payments, to eliminate the “will we get paid on time?” problem altogether.
- Read my other articles about collections at agencies.
Whatever changes you make, I think you’ll be pleasantly surprised by the results.
Question: What payment terms are you using on your agency’s invoices?