Collecting Accounts Receivable: A CFO’s Guide for Agencies

They often say: is the juice worth the squeeze? With A/R collections, the answer is always yes — if you’re squeezing it right.

The metaphorical saying (and sometimes overly used corporate idiom) of “is the juice worth the squeeze?” applies perfectly to accounts receivable.

If collecting feels like too much effort for too little return, the problem likely isn’t the juice — it’s the process. Maybe you’re squeezing the wrong way: chasing invoices manually, invoicing late, or not setting clear terms up front.

With the right tools and discipline, every receivable becomes an orange that yields its full value. And the more consistently you squeeze, the more cash fills the glass — fueling growth and stability.

(Btw, I personally am quite proud of this analogy I came up with, but totally won't take offense if you are rolling your eyes and think it's a little corny 😄)

Ok let's focus. Cash flow is the lifeblood of every agency. Yet, one of the most common challenges agency owners have is collecting accounts receivable (A/R) on time.

Revenue on paper doesn’t mean much if the cash hasn’t hit your bank account. Agencies can easily get caught in the “profitability trap” — celebrating a big retainer or project win, only to struggle with payroll a few weeks later because clients are slow to pay.

Let’s break down why A/R matters so much for agencies, where things go wrong, and how to build a collection system that protects your cash flow.

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Why A/R is Especially Critical for Agencies

Agencies are often different from many other service businesses:

1. High payroll dependency – Payroll is usually 60–70% of costs, and it’s inflexible. You can’t delay paying your team while waiting on a client check.

   
   

2. Retainer/project mismatch – Retainers are predictable, but projects and pass-through costs (like media spend or contractors) can spike unpredictably. Without strong collections, these swings wreak havoc on cash flow.

   
   

3. Client concentration risk – Many agencies rely on a handful of big clients. One late payment can ripple through the entire firm.

   
   

Healthy A/R management is not just bookkeeping. It’s risk management and growth strategy.

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Where Agencies Often Go Wrong with A/R

1. Loose contracts and unclear payment terms – Agencies sometimes rush to close deals and skip enforcing strong payment terms. Net-60 (or worse) might sound like a small concession, but it’s essentially free financing for your client.

   
   

2. Slow or inconsistent invoicing – If your team isn’t invoicing the day work is delivered (or by retainer start date), you’re already behind.

   
   

3. No accountability on collections – Many agencies leave collections to the CEO or account managers. The result? Collections become “relationship-based” instead of “process-based.”

   
   

4. Failure to track metrics – Without monitoring DSO (Days Sales Outstanding) and A/R aging reports, it’s impossible to know if collections are improving or slipping.

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Building a Fortified A/R Process

Here’s the CFO-approved framework I recommend agencies implement:

1. Tighten Your Contracts

   • Require 50% upfront on projects, with milestone-based billing.

   • Standardize Net-30 terms (Net-15 if possible). Avoid Net-60 unless it’s priced in.

   • Add late payment penalties (even if you rarely enforce them, they set the tone).

   • If you bill clients the same amount each month, ask your clients if you can set up automatic ACH debits on a fixed date. Or just require it.

     
     

2. Invoice Immediately and Accurately

   • Automate invoicing through your accounting system or project management tools.

   • Ensure invoices clearly state client PO numbers, deliverables, and payment instructions — no friction.

     
     

3. Assign a Collections Owner

   • Finance should own collections, not account managers.

   • Create a weekly A/R review and assign follow-ups on overdue accounts.

     
     

4. Segment and Prioritize A/R

   • Use an A/R aging report (0–30, 31–60, 61–90, 90+) to prioritize.

   • Clients in the 61–90+ bucket get escalated to leadership, with clear stop-work policies.

     
     

5. Communicate Proactively

   • Send friendly reminders a few days before invoices are due.

   • If payment is late, have a tiered approach:

     • Day 1 late: Automated reminder.

     • Day 15 late: Personal email.

     • Day 30 late: Phone call from finance lead.

     • Day 45 late: Escalation to CEO + pause work.

       
       

6. Tie A/R into Cash Forecasting

   • Roll A/R data into your 13-week cash flow forecast.

   • This helps you anticipate shortfalls before they happen and adjust spending accordingly.

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KPIs Every Agency Should Track

1. DSO (Days Sales Outstanding) – How long it takes to collect revenue. Target: <45 days.

   
   

2. % Current A/R: Share of receivables in the 0–30 day bucket. Target: 70%+.

   
   

3. Collections Efficiency Index (CEI) – Measures how much of available receivables you actually collect. Target: 90%+.

   
   

4. Client concentration in A/R – No single client should make up more than 30% of receivables.

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Final Thoughts

Strong A/R management does more than just improve cash flow:

• It makes your agency more valuable (buyers and investors scrutinize receivables).

• It improves banking relationships (banks are more willing to lend against receivables with clean collection history).

• It strengthens client relationships by setting clear expectations and boundaries.

At the end of the day, cash is king. If you want your agency to grow sustainably, you need a disciplined, repeatable system for collecting what you’ve already earned.

Just remember: A/R isn’t back-office busywork. It’s a strategic lever for cash flow, stability, and valuation.

As always, I’m more than happy to provide some additional perspective and guidance.

Contact Me!

Now, get out there and do some extraordinary things.