My agency nearly collapsed in its first 12 weeks. We had strong sales, good clients, and work coming in. We also had no money. Payment terms were too generous, receivables management was nonexistent, and I was learning the hard way that revenue is not cash.

For most of my agency’s existence, we had zero recurring revenue. Every month started at zero. The first of the month meant resetting the counter and hoping the pipeline would fill fast enough to cover salaries, rent, and everything else. That is not a business model. It is a stress test.

Cash flow problems kill more agencies than lack of talent, lack of clients, or lack of ambition. Here is how to fix them structurally so you stop living month to month.

Why Agency Cash Flow Is Different

Agencies have a cash flow problem that most other businesses do not: the gap between work and payment.

A product business sells something, gets paid, and ships it. The timing is straightforward. An agency sells a project, starts work immediately, delivers over weeks or months, invoices on completion, and then waits 30 to 60 days for payment. By the time the money arrives, you have been carrying the cost of delivery for 2 to 3 months.

Multiply that across 10 or 20 active projects and the gap becomes dangerous. You can be profitable on paper and bankrupt in practice.

The Three Cash Flow Killers

1. Late-stage invoicing. Most agencies invoice on completion. That means you fund the entire project and hope the client pays on time. They rarely do.

2. No recurring revenue. Project-based agencies start every month at zero. There is no foundation to build on. Every month is a scramble.

3. Scope creep. Extra work that never gets invoiced. One client audit might reveal thousands of pounds in unbilled work that accumulated over months.

Fix 1: Change When You Get Paid

The single biggest improvement you can make to agency cash flow is changing your payment terms. Not chasing invoices harder. Restructuring when money comes in.

The Deposit Framework

For every new project, collect a deposit before work begins. This is non-negotiable.

New clients: 50% deposit before any work starts, 50% on completion. This is the minimum. For your first project with any client, do not start work until the deposit clears your account.

Established clients: You can move to milestone payments once you trust the relationship. 30% on briefing, 40% at first proof, 30% on completion. The key is that money arrives during the project, not only at the end.

Large projects (over £10,000): Break into monthly milestones. If a project runs 3 months, invoice monthly for the work completed that month. Do not wait until the end.

The deposit framework does two things. It improves your cash position immediately, and it qualifies your clients. Anyone who refuses to pay a deposit before work starts is telling you something about how they treat suppliers. Listen to that signal.

Shorten Your Payment Terms

If your invoices say “payment within 30 days,” you are funding your clients’ cash flow with your own. Most agencies can move to 14-day terms without losing clients.

Here is the conversation: “We’re updating our payment terms to 14 days from invoice. This helps us maintain the team and service levels you expect.” No client has ever left an agency over payment terms. If they push back, offer a 2% early payment discount. You will still be better off than waiting 45 days for a 30-day invoice.

Automate Your Invoicing

Late invoicing is the agency owner’s blind spot. You finish a project, move on to the next one, and forget to invoice for a week. That week turns into a fortnight. Your 30-day payment terms now become 45 days in practice.

Set up automated invoicing through your accounting software. Xero, QuickBooks, and FreshBooks all allow scheduled invoices. When a milestone is hit, the invoice goes out the same day. No human intervention, no delay.

Fix 2: Build Recurring Revenue

The single most important structural change you can make to your agency is building a base of recurring revenue. Monthly retainers that cover your fixed costs before you sell a single project.

Why Recurring Revenue Changes Everything

If your monthly fixed costs are £15,000 and you have £12,000 in retainer revenue, you only need to sell £3,000 in project work to break even. That changes your decision-making completely. You stop taking bad projects out of desperation. You stop discounting to win work. You negotiate from strength instead of fear.

The Retainer Tier Model

Not all retainers are equal. Separate your offering into two tiers:

Support tier (maintenance): Reactive work. Bug fixes, small updates, keeping things running. Lower price point. This is the “keep the lights on” service.

Scale tier (strategy): Proactive work. Monthly reviews, strategic recommendations, improvement roadmap, accountability for results. Higher price point.

The distinction matters because it prevents scope creep. When a Support client asks for strategy, you have a clear answer: “That’s included in our Scale tier.” When a Scale client asks for a full rebuild, you have an equally clear answer: “That’s a separate project.”

Price the Support tier to cover costs with a small margin. Price the Scale tier to reflect the value of accountability and strategic input. A common starting point: Support at £400 to £600 per month, Scale at £800 to £1,200 per month.

The Workstream-First Approach

For new clients, do not lead with a retainer proposal. Lead with a defined project (a workstream) that fixes their most pressing problem. Price it at £2,000 to £3,000. Complete it in 2 to 4 weeks.

Then transition to a retainer. The conversation becomes natural: “We’ve fixed the fundamentals. To maintain this and keep improving, we recommend our monthly support plan.”

This approach prevents the month-one overdelivery problem. If you sell a retainer first, you spend the first month doing foundational work that should have been a separate project. The client sees a busy first month and expects the same every month. You have set an unsustainable precedent.

Workstream first. Then retainer. In that order.

Fix 3: Stop the Leaks

Cash does not only flow out through expenses. It leaks through unbilled work, scope creep, and projects that cost more to deliver than they earn.

Track Your True Project Costs

Most agencies track revenue per project but not cost per project. Revenue looks healthy. Profit per project tells a different story.

One agency I worked with was billing £2,000 for web projects. After we tracked the actual cost of delivery (designer time, account management, project management, client meetings, revisions, and overhead allocation), each project was costing £3,500 to deliver. They were paying clients to work with them and did not know it.

Track every hour spent on every project. Not to bill hourly, but to understand your true cost of delivery. After 3 months of data, you will know exactly which services make money and which ones drain it.

Audit for Scope Creep

Run a quarterly scope audit on every retainer client. Compare what you are delivering against what is in the contract. I discovered one client was getting about £3,000 of free work annually from scope creep that had built up over months. Small requests that seemed harmless individually but added up to a significant cost.

The conversation does not have to be adversarial. “We’ve been reviewing our delivery and noticed we’re providing [list] which falls outside the original scope. We’d like to either adjust the scope or update the retainer to reflect the work we’re doing.” Most clients respect this. They know they have been getting extras. They will pay if the value is there.

Fire Unprofitable Clients

Not every client is worth keeping. If a client consistently pays late, demands scope beyond their contract, and generates more stress than revenue, they are costing you money even if their invoices look positive.

Calculate the true cost of your bottom 5 clients: revenue minus delivery cost, minus the management overhead of dealing with their problems. If any of them are negative, have the conversation. Either restructure the relationship or end it. The capacity you free up is worth more than the revenue you lose.

Fix 4: Build a Cash Buffer

Agencies are cyclical. Q4 slows down. Clients delay decisions in summer. Projects stall. You need a buffer to absorb these dips without panic.

The 3-Month Target

Your goal is to have 3 months of fixed costs sitting in a separate account. If your monthly fixed costs are £15,000, that means £45,000 in reserve.

Build this gradually. Set aside 5 to 10% of every invoice into a separate account. Do not touch it for operations. It is there for the months when cash flow dips, when a client pays late, or when something unexpected happens.

This buffer changes your psychology. You stop making fear-based decisions. You stop taking bad clients because you need the money this month. You negotiate better because you are not desperate. The buffer pays for itself in better decision-making.

Separate Your Tax

Put 20 to 25% of every payment received into a separate tax account. Not at the end of the year. With every payment. This prevents the January tax bill from being a crisis. It is the single most practical piece of financial advice for agency owners and the one most often ignored.

Fix 5: Forecast and Plan

Cash flow problems are rarely sudden. They build over weeks and months. The agencies that avoid crisis are the ones that see problems coming.

The 13-Week Cash Flow Forecast

Build a simple spreadsheet:

Update it weekly. It takes 15 minutes. What it shows you is invaluable: the week your cash runs low, the month your income dips, the quarter you need to sell harder.

Most cash flow problems become visible 4 to 6 weeks before they hit your bank account. That is enough time to act: chase overdue invoices, accelerate new business, or delay a non-essential expense.

Monthly Financial Review

Block one hour on the first Monday of every month to review:

This is not optional. If you do not look at the numbers, you cannot manage them. The agencies that fail financially are almost always the ones where the owner avoids the spreadsheet.

What to Do This Week

  1. Check your payment terms. If they are longer than 14 days, shorten them. Send the updated terms to your next invoice.
  2. Count your recurring revenue. Total monthly retainer income divided by monthly fixed costs. If the number is below 50%, building retainer revenue is your priority.
  3. Run a scope audit. Pick your 3 largest retainer clients. Compare what you are delivering against what the contract says. Note the gap.

Cash flow is not about chasing invoices faster. It is about building a structure where the money arrives before you need it.

Further Reading

Read A Sale Is Not a Sale Until the Money Is in Your Bank for the complete framework on payment collection and follow-up processes.

For profitability benchmarks and margin improvement, see the creative agency margins guide.

Take the free Agency Valuation to see how your cash flow and financial management score against the 7 factors buyers evaluate. Cash flow predictability is one of the strongest signals of a healthy agency. It takes 3 minutes.

If you want structured support to fix cash flow and build recurring revenue in your agency, the Strategic Growth Programme covers financial systems as part of the 12-month framework. Book a discovery call to discuss your situation.