Cash flow complications are commonplace for creative businesses, who wait on average 72 days to receive payment from clients. Paul Haydock CEO at DueCourse offers insights into cash flow complications and alternative finance for creative business.
You’re on a high following a significant client win, relieved that the hard work for the pitch paid off and excited to begin the project or campaign, but as the logistics of delivering the work quickly become the focus, you realise that the cash resources required to get things off the ground aren’t readily available. It’s a dilemma faced by many creatives week in week out: the cash flow conundrum.
For people ‘on the ground’ in the creative industry, sexy stats such as the Creative Economy being worth £84.1 billion per year to the UK and generating £9.6 million per hour, will be just that; an attractive representation, much like a dating profile photo taken from a flattering angle, hiding the flaws that exist.
However, the success of the industry as a whole doesn’t reflect the day-to-day struggles faced by many of the estimated 150,000 creative businesses operating in the sector that regularly face cash flow problems, which can make it difficult to kick start projects and prohibit growth. The average wait on invoices to be paid by clients is 72 days; startling, considering that most creative companies will issue invoices with 30-day payment terms.
Such delays in payments or long payment terms, sometimes up to six months with large clients, coupled with projects being pulled, and indeed, rising supplier costs, can have a huge impact on a creative business’ cash flow.
With 35% of SMEs citing late payments or cash flow problems as the biggest barriers to growth, Paul offers the following tips to take a creative approach to maintaining cash flow:
Organise your books
Disorganised book keeping is one of the most common causes for delays in payments so we’d strongly urge business to put systems in place to ensure accurate and timely invoicing, setting payment terms and conditions and consistent record keeping. If you can’t afford to pay a professional then online accounting providers like SageOne and Xero provide smart and simple ways to manage your business’s finances.
Where possible, always meet the people you are doing business with and check their credit ratings for your own peace of mind. Credit checking sites, such as Experian or Credit Safe will provide your potential client’s rating. Your accountant should also be able to help you with this and give you advice on how to ensure they do pay for services provided, e.g. asking for deposits, upfront payment or credit limits.
Try to set aside time each month for cash flow forecasting – check out online tools, such as Float and Pulse help you with this or your accountant can provide you with a excel template. This will help you understand and predict when you may need to access additional funding and capital to keep things afloat.
You might not have resources for a a dedicated person to chase late payment but set yourself reminders to follow up on unpaid invoices if they haven’t landed in your company bank account. You can establish late payment terms to try to avoid overdue invoices but again, you may need to consider short-term alternative finance to cover delays to payments.
There are many alternative finance resources available and we offer smart-lending technology allowing small businesses to free the cash tied up in unpaid invoices in just a few clicks, creating a convenient and flexible way to control cash flow into the company. This is done through linking the your existing accountancy platform to assess which unpaid invoices can be advanced against. Unlike traditional invoice financing however, there is no laborious paperwork and it's completely confidential. Everything takes place using a secure online platform meaning money reaches the bank in a matter of hours rather than days, or in some cases even weeks.