Sarah-Jayne Martin, Director of Financial Automation at Quadient
Like it or love it, agency life never seems to slow down, along with an ever-changing mix of clients and suppliers. Every new addition to this list means the number of invoices coming in and out of the agency grows – along with a range of processes, from raising and sign-offs through to tracking and chasing.
There are a lot of links along the chain, and if one breaks payments will not make it through. This happens startlingly often: more than nine in ten marketing agencies experiences late invoice payments, with more than half of payments coming 15 or more days late. As the UK Government points out, late payments are one of the most significant factors in companies failing, even when they are trading effectively. If agencies can’t keep money moving along the chain, they will struggle to survive.
Managing the ins and outs
It’s important to remember there are two sides to the coin for finance teams. Naturally, Accounts Receivable (AR) is a primary focus in any agencies – what could be more important than money owed? This isn’t only the lifeblood that keeps the business running: it can also demonstrate the value brought by individuals and departments, and is a clear indicator of overall financial performance. To keep AR running smoothly, agencies need visibility over the status of invoices that have been issued, and follow up promptly if there are any delays in payment, to ensure funds are received as soon as possible.
At the same time an accurate, up-to-date view over Accounts Payable (AP) is equally crucial. As well as potentially affecting relationships with vital suppliers and partners, leadership teams will struggle to make decisions if they don’t have all the facts to hand. For instance, over- or under-estimating the available budget due to not knowing how much it owes suppliers could mean a business makes a costly mistake. Over the longer term, if they struggle to accurately create reports and annual accounts, agencies could find themselves in hot water with the regulators.
Digital transformation success
With the list of clients and suppliers in constant flux, keeping track cash flow is easier said than done. To stay on top of everything that is going on, agencies cannot rely on traditional pen and paper, or even Excel spreadsheets. They urgently need to digitally transform the finance function to keep it as mature as possible.
This means a lot more than simply digitising existing processes. Yes, electronic data will be easier to search and query. But if processes aren’t modernised and transformed at the same time, any improvement will be minor. For instance, moving existing processes from paper to silicon won’t make manual data entry faster or more accurate; speed up the sign-off process; or allow for a thorough audit of every step of an invoice and payment.
Automation is the critical ingredient in the mix. Modern accounting tools should offer the ability to automate accounts receivable and payable: scanning in invoices, moving them through the payment process, and flagging any potential issues – such as an invoice that is potentially fraudulent, or doesn’ meet all of a client’s requirements.
With confidence in the basic process, agencies can then transform it even further – for instance, analysing clients to predict who might raise issues with an invoice, and squashing potential points of contention before they become a problem – or identifying habitual late payers.
While marketing as a whole embraces technology enthusiastically, the finance function can sometimes be left behind. After all, as a function it tends to work perfectly until it suddenly doesn’t, meaning the need for transformation either isn’t apparent, or is a matter of life or death. However, planning a transformation of this function can pay dividends – not only modernising, but removing what often becomes a choke point on agencies’ further growth. Working with a trusted partner to drive the most successful digital transformation possible will help future-proof the whole organisation.
Reaping the rewards
While some may think ‘if it ain’t broke, don’t fix it’, the rewards brought by successfully digitally transforming the finance function are too great to ignore. In general we see invoices being processed 50% faster as a result, meaning that overdue Accounts Payable can become a thing of the past. And on the other side of the coin, overdue AR can drop by 40%.
Ultimately cashflow is the lifeblood of marketing agencies. After so much work has gone in, they cannot afford to fall at the final hurdle of getting the money over the line. Taking a considered approach to successfully digitally transform finance will enable agencies to maintain and improve relationships with clients and suppliers, as well as making life easier for employees and even getting the auditors onside. Ultimately this will drive business growth – setting the agency up for success into the future.
