Running a successful agency ain’t all sunshine and rainbows. Nope, it comes with its fair share of headaches, and two big ones are late payments and over-servicing clients. You see, these problems can hit your agency where it hurts – in the wallet! 

Late payments can mess up your cash flow and make you wonder if you’ll ever pay those bills on time. And over-servicing? Well, that’s like giving away freebies without even realising it.

In this article, we are going to dive deep into late payments and over servicing clients issues. We will break down why they happen and, most importantly, arm you with some killer strategies to dodge these agency traps like a pro.

 

Understanding the agency dilemma

Late payments

Late payments are like the ghosts of your receivables, haunting your cash flow. Clients dragging their feet on paying can mess with your ability to pay your own bills, your team, and even invest in the growth of your agency. 

It’s like waiting for the bus, but the bus is never on time, and you’re left wondering when it’s going to show up.

Over-servicing

The “Silent Profit Killer” on the other hand, over-servicing is similar to lending your friend a fiver and getting back a handful of change. It’s when you offer more services than what you initially agreed upon, often without getting anything extra in return. 

It’s great to go the extra mile, but when it’s an unplanned marathon, it can drain your energy and resources, leaving you wondering why you didn’t put up that “No Free Lunches” sign.

Impact of late payments and over servicing clients

Now, let’s talk about the impact. 

Late payments throw a wrench in your cash flow gears, making it tough to keep your agency’s engine running smoothly. Your ability to invest in new projects, pay your hardworking team, and maintain a steady ship can all take a hit. It’s like biking uphill with a flat tire – unnecessarily difficult and exhausting.

Over-servicing, on the flip side, might feel like being the generous genie granting wishes. However, being too generous can lead to burnout, strained resources, and a big dent in your profits. It’s like offering a buffet and having guests take home doggy bags filled with your hard-earned lasagna. Not ideal, right?

 

Causes of late payments and over-servicing

Causes of late payments

• Lack of Clear Agreements and Communication: Sometimes, the terms of payment aren’t crystal clear from the get-go. Ambiguities in contracts, misunderstandings, or verbal agreements can all lead to clients delaying payments unintentionally.
• Inefficient Invoicing Systems: Inadequate or inefficient invoicing processes can be a major culprit. If your invoices are confusing, sent irregularly, or lack the necessary information, clients may struggle to process them promptly.
• Financial Constraints on the Client’s End: Clients facing their own financial challenges may delay payments to manage their cash flow. Economic downturns, unexpected expenses, or budget constraints can all play a role here.
• Disputes or Dissatisfaction with Services: Clients might delay payments if they’re unhappy with the services provided or if there are disputes regarding the quality or scope of the work delivered.

Causes of over-servicing

• Undefined or Unclear Scope of Work: When the scope of a project isn’t clearly defined or communicated, it’s easy to fall into the trap of over-servicing. Team members might provide additional services, assuming it’s expected.
• Client Requests Beyond the Scope: Well-intentioned client requests can often lead to scope creep or over-servicing. Clients might ask for “small favours” or minor tweaks that, over time, accumulate into substantial amounts of extra, unpaid work. 
• Lack of Effective Project Management: Poor project management can result in team members not accurately tracking time and effort, making it challenging to identify and bill for the additional services provided.
• Desire to Exceed Client Expectations: Agencies often want to go the extra mile to please clients and provide exceptional service. However, this desire to exceed expectations can lead to overworking and over-servicing without charging appropriately.

 

Strategies to avoid late payments

Here are some actionable strategies to dodge the late payment bullet.

Establish clear payment terms and expectations

Clear and agreed-upon payment terms are the bedrock of a healthy payment process. Here’s how to nail this strategy:

• Be Explicit in Engagement Letters: Ensure your payment terms are stated in the engagement letter clearly. Specify payment due dates, modes of payment, and any penalties for late payments.
• Discuss Payment Terms Early: Have a discussion about payment expectations with clients at the beginning of your business relationship. This prevents misunderstandings down the line.
• Set Realistic Payment Deadlines: Align payment deadlines with project milestones or deliverables. Make sure they’re achievable and realistic for both parties.

Streamline payment workflow

A streamlined payment process can significantly reduce late payments. Here’s how to optimise it:

• Automate Payment Process: Invest in a sophisticated engagement letter software that automates the entire payment process, and facilitate smooth client onboarding and payment flow within a single platform
• Initiate Payments at the Outset: Improve your financial position by requesting clients to initiate payments at the outset, even before formally starting the engagement using tools like Fresh Proposals. 
• Include All Necessary Information: Ensure your invoices are comprehensive, detailing the services provided, costs, payment terms, due dates, and contact information.

Offer multiple payment options and incentives for early payments

Making it convenient and appealing for clients to pay promptly is a smart strategy:

• Multiple Payment Channels: Offer various payment methods like credit cards, ACH, bank transfers, or digital wallets, so clients can choose what’s most convenient for them.
• Early Payment Discounts: Encourage early payments by offering a small discount or an incentive. This can motivate clients to settle their invoices sooner.

Establish a structured follow-up and collections process

Consistent follow-up ensures payments don’t slip through the cracks. Here’s how to do it effectively:

• Automate follow-ups: Fresh Proposals helps you automate recurring payments and follow-ups, and add a new level of convenience and efficiency to their workflow.
• Personalize Follow-ups: Tailor your follow-up approach based on the client’s communication preferences to maintain a respectful relationship.
• Escalate When Necessary: Have a clear escalation process in place. If a payment is significantly overdue, know when and how to escalate the issue to collections or legal action.

 

Strategies to avoid over-servicing clients

Creating comprehensive project scopes and contracts

• Detailed Project Scopes: Define the project scope in detail, specifying the services included and excluded. Leave no room for misinterpretation.
• Clearly Defined Deliverables: Clearly outline what the final deliverables will be, ensuring alignment between client expectations and the scope of work.
• Approval Process for Scope Changes: Implement a structured process for any changes to the project scope, with necessary approvals from both parties and a clear understanding of the associated costs and timelines.

Setting clear boundaries and expectations with clients

• Initial Project Kickoff Meeting: Conduct a comprehensive project kickoff meeting to set expectations, discuss project goals, timelines, and clarify client responsibilities.
• Regular Communication: Maintain open communication channels with clients throughout the project, updating them on progress and addressing any concerns promptly.
• Educate Clients on the Process: Educate clients on the agency’s workflow, emphasising the importance of adhering to the agreed-upon scope and how changes can impact timelines and costs.

Track and manage project hours and resources diligently

• Time Tracking Tools: Implement time tracking tools to monitor hours spent on each project. This data helps in identifying when the allocated time is nearing exhaustion.
• Resource Allocation: Monitor resource allocation to ensure that team members are working efficiently and not exceeding the budgeted hours for the project.
• Regular Check-Ins: Conduct regular check-ins with team members to discuss progress, workload, and potential challenges related to project timelines and resources.

Regularly review project progress and communicate with clients to ensure alignment

• Scheduled Progress Reviews: Set up regular project progress reviews internally to assess the project’s status against the defined scope and timelines.
• Client Checkpoints: Organize periodic client meetings to review project progress, address any concerns, and ensure alignment with client expectations.
• Transparent Reporting: Provide clients with transparent, detailed project reports, showcasing progress, upcoming milestones, and any deviations from the original plan.

Over to you

Late payments and over-servicing are significant challenges that agencies face, but with proactive measures and effective communication, these issues can be mitigated. 

Implementing strategies to set clear expectations, streamline processes, and encourage open dialogue with clients can lead to a healthier agency-client relationship and contribute to long-term success and growth.

By staying vigilant and adopting the right tools and approaches, agencies can overcome this trap and thrive in the dynamic world of business.