Insights
Why your agency has cash flow problems when it is making a profit
Most agency cash flow problems come from the gap between paying your team and collecting your fees. Every day a client takes to pay ties up another day of fees. Work out how much cash that gap holds, then shorten it, and the profit starts reaching the bank.
Mohammad Azam, Aprecity Consultants · 5 min read
Why a profitable month still leaves you short
Your profit and loss shows a good month. Then payroll lands, and you move money around or wait on one client's payment to cover it.
You pay your team every month, on a fixed day. Your clients pay when their own process lets them, often weeks after your invoice.
Until a fee is paid, the profit in it sits on your client's balance sheet, not yours. You cannot pay salaries with it.
What the gap holds
Cash tied up = monthly fees x days to collect / 30
Run the numbers on an invented agency billing $80,000 a month, with $68,000 of monthly costs. It makes $12,000 of profit every month.
It invoices at the end of each month. How long its clients take to pay decides how much of its money is out of reach.
| Days to collect | Cash tied up | Months of profit |
|---|---|---|
| 30 | $80,000 | 6.7 |
| 45 | $120,000 | 10.0 |
| 60 | $160,000 | 13.3 |
These figures describe an invented agency chosen to show the arithmetic. They are not a client result.
At 60 days, the agency has more than a year of profit waiting in unpaid invoices. Cutting that to 30 days puts $80,000 back in its account.
Growth makes it worse. Each extra $10,000 of monthly fees ties up another $20,000 at 60 days, before the new work earns anything.
Run it on your own numbers
- ( 01 )
List every unpaid invoice
Pull the unpaid invoices report from your books, with the date each was sent. Total it.
- ( 02 )
Work out your days to collect
Divide the unpaid total by your last three months of fees, then multiply by 90. That is your real payment speed, whatever your terms say.
- ( 03 )
Price the gap
Put your monthly fees and days to collect into the formula. Compare the answer with your monthly profit.
- ( 04 )
Bill retainers before the month starts
Invoicing on the first for that month's work moves a whole month of fees forward, once, for good.
- ( 05 )
Chase on a fixed day each week
Give one person the list and one day. Invoices that someone asks about get paid sooner than those nobody mentions.
What changes when the gap shrinks
Every ten days you take off your payment speed frees a third of a month's fees. That cash is yours to keep, not a loan.
You stop timing payroll around one client's payment. Hiring and pricing decisions get made from the profit and loss, not from the bank balance that week.
Track days to collect every month next to your profit. When it falls and profit holds, the cash flow problem is fixed.