What is the most common cash flow mistake agencies make?

The most common cash flow mistake agencies make is confusing revenue with cash. You invoice £50,000 but that money sits in accounts receivable for 30, 60, or even 90 days while payroll, rent, and supplier invoices are due immediately. The gap between when you recognise revenue and when cash actually arrives creates a timing mismatch that kills otherwise profitable agencies. The solution involves three actions: first, restructure payment terms to collect 50% upfront on all projects; second, build a 13-week rolling cash flow forecast that tracks when money actually moves, not when invoices are sent; third, maintain a cash buffer of 2-3 months operating expenses. Agencies often celebrate winning a big contract without realising they need to fund 60-90 days of work before seeing any payment. Revenue going up while cash goes down is a warning sign that payment terms need immediate attention. Track cash position weekly, not just profit monthly.

The Cash Flow Mistake Most Agencies Make | Tax Accountant Guide

You've just landed a big client. Revenue is up. The P&L looks great. But somehow, you're still scrambling to make payroll. Sound familiar? You're not alone, and you're making the same cash flow mistake most agencies make.

The Core Problem

Profit ≠ Cash

Your P&L shows revenue when invoiced. Your bank shows cash when paid. The gap can kill you.

30-60 Day Gap

Typical time between invoicing and getting paid. Your costs don't wait.

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The Problem: Confusing Profit with Cash

Here's the issue: your profit and loss statement shows revenue when you invoice a client, not when they actually pay you. Meanwhile, you're paying your team, your software subscriptions, and your office rent in real time.

This timing mismatch is what kills agencies. You can be profitable on paper while running out of cash in reality.

The Timing Mismatch That Kills Agencies

Day 1: You win the project

P&L impact: None yet

Day 1-30: You do the work

Cash out: Salaries, tools, overheads paid immediately

Day 30: You invoice

P&L shows revenue. Bank balance: Still waiting.

Day 60-90: Client finally pays

Cash in, but you've been covering costs for 2-3 months

Why Agencies Are Especially Vulnerable

Challenge	Impact	Cash Flow Effect
Long Payment Terms	Clients pay 30-60 days after invoicing	2 months of costs before cash arrives
Upfront Costs	Team and tools paid before clients pay	Negative cash flow on every project start
Project-Based Work	Revenue is lumpy, costs are consistent	Unpredictable cash position
Scope Creep	Extra work without extra payment	Margin erosion, longer payment cycles

The Solution: Cash Flow Forecasting

The fix isn't complicated, but it requires discipline. You need to forecast your actual cash flow alongside your revenue. (For a complete step-by-step guide, check out our simple forecasting framework for agency growth.)

Track Actual Payments

Record when invoices are actually paid, not when issued. This is your real cash position.

Map Your Expenses

Know exactly when payroll, rent, and other costs are due. No surprises.

Rolling 13-Week Forecast

Update weekly to stay ahead of cash crunches. 13 weeks gives you time to act.

Identify Danger Zones

Spot periods where cash will be tight before they happen. Plan ahead.

Practical Steps to Improve Cash Flow

Action	How	Impact
Shorten Payment Terms	Move from 30 days to 14 days	Cash arrives 50% faster
Invoice Promptly	Invoice on delivery, not month-end	Save 2-3 weeks per invoice
Require Deposits	Get 30-50% upfront on new projects	Cover initial project costs
Chase Late Payments	System for following up at 7, 14, 21 days	Reduce average payment time by 30%
Build Cash Buffer	Aim for 2-3 months operating expenses	Sleep at night

For more detailed strategies on improving agency cash flow, read our complete cash flow survival guide for small agencies.

Warning Signs You're in Trouble

Red Flags: If You're Doing Any of These, Act Now

⚠Constantly checking your bank balance

⚠Delaying supplier payments to make payroll

⚠Using credit card or overdraft for operating expenses

⚠Can't predict whether you'll have enough cash next month

Your Cash Flow Action Checklist

Create a 13-week rolling cash flow forecastReview and shorten payment terms with clientsSet up a system for chasing late paymentsImplement upfront deposits on new projectsStart building a 2-3 month cash buffer

The Bottom Line

Cash flow management isn't glamorous, but it's essential. The good news? Once you have a system in place, it becomes routine. And the peace of mind that comes from knowing you can make payroll every month? Priceless.

For related guidance, read our agency profitability guide to understand how utilization, margins, and profit per head impact your financial health.

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The Cash Flow Mistake Most Agencies Make

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