Hearing from an agency customer that their biggest challenge is getting paid for the work they’ve done, MarketInvoice CEO Anil Stocker was inspired to investigate the issue further
A big portion of the businesses we work with operate within creative industries. And, especially when working with big media owners, exchanges or large corporates, creative businesses are often subject to lengthy payment terms – sometimes as long as 90 days.
Worse still, invoices are regularly being settled almost two weeks after the agreed date. Indeed, our MarketInvoice Business Insights research found 48% of invoices issued by creative businesses in 2018 were paid late. With the average invoice worth over £38,000, the impact of this is huge.
Every delayed invoice means more time chasing payment and less time to focus on growing the business. There are also knock-on effects such as being prevented from kicking off new projects. So what can creative businesses – and those in other sectors for that matter – do to help mitigate the risk of late payments?
There are certain contingency plans companies can build into the terms of contracts they have with their debtors. For example, they could ask for a 50% payment upfront, request minimum monthly payments for the duration of the project or include a clause enabling the business to retain intellectual property in case of non-payment.
As the business grows, it’s essential they take on a dedicated person to manage finances – someone with credit control experience who can put systems and processes in place for tracking invoices and chasing late payments. This person must be able to take a tough line when necessary, be persistent not only in chasing payments directly but in reminding the client-facing teams to look out for early signs that a debtor is likely to delay payment.
This isn’t to say businesses should be fostering adversarial relationships with their debtors and letting good communication break down. Building good rapport with debtors can actually make all the difference when it comes to getting paid on time. Often, late payment is not a conscious decision but just a result of the multi-layered nature of the organisation. Staying front-of-mind with the relevant people will help ensure a greater effort is made to pay invoices on time.
Despite cashflow pressures, the future seems bright for thriving creative industries which contribute £102bn to the UK economy. Late payments aside, creative businesses remain optimistic and ambitious with 73% planning to grow this year. This is compared to 53% of SMEs in general, according to a 2018 Creative Industries Council report. They’re also almost twice as likely than other SMEs to use external finance to support that growth.
With the right funding in place to cushion the shortfall of long or late payments, businesses have the fuel to kick off new projects, hire the best talent and focus all their energy on doing what they do best.