For creative agencies, cash flow is often unpredictable. One month, you’re swimming in cash; the next, you’re scrambling to pay your team. This “lumpy” cash flow is caused by the project-based nature of the work and the all-too-common issue of late payments. Here’s how you can smooth out the bumps and get better control over your finances.
1. Build a Cash Reserve
One of the best ways to handle lumpy cash flow is to build a cash reserve. Ideally, aim to save enough to cover at least three months of operating costs. Having this buffer means you’re not panicking every time a payment is delayed or when you have a slow period.
Tip:
Set aside a percentage of every payment you receive into a dedicated savings account. Even if it’s only 5-10%, it will add up over time.
2. Negotiate Better Payment Terms
Late payments are a cash flow killer. Consider asking for 50% upfront or breaking project payments into several instalments. This way, you have a steady stream of income throughout the project rather than waiting for a lump sum at the end.
Tip:
Make payment terms crystal clear in your contract and consider offering incentives for early payments.
3. Use Cash Flow Forecasting Tools
A simple cash flow forecast can help you see when you’re likely to hit a cash crunch. Use tools like Xero or QuickBooks to monitor your expected income and outgoings. This will allow you to plan ahead and avoid surprises.
By taking these steps, you can make lumpy cash flow more manageable and reduce the stress that comes with inconsistent income.
Leave a Reply