On invoicing earlier

The single highest-leverage cashflow change a small studio can make is to invoice earlier.

Most small studios invoice at the end of the month, on the last working day, for the work that was done that month. The client pays on their thirty-day terms. The cash arrives, on average, sixty days after the work was done. For a studio running close to the line on cash, this means there is always two months of work-in-progress that the studio is funding out of its own balance.

Invoicing on the first working day of the month, instead of the last, moves the cash arrival forward by roughly a month. The work was the same. The terms are the same. The client pays at the same point in their accounts cycle. The only difference is that the invoice has been sitting in the client’s queue for an extra month, which means it gets paid an extra month sooner.

For a studio billing twenty thousand pounds a month, this is twenty thousand pounds of working capital that no longer needs to be financed out of the studio’s own reserves. It is the cheapest financing the studio will ever access, and it costs nothing to implement.

The mechanic, in practice. The studio bills monthly, in advance, for the work that is going to happen that month. The contract specifies the amount and the date. The invoice goes out on the first working day. The client’s accounts payable team pays it on the same terms they would have paid the end-of-month invoice on, which puts the cash in the studio’s account about two weeks before the work is finished, instead of a month after.

A few notes for studios moving to this model.

The contract has to specify advance billing. Most boilerplate design contracts assume billing in arrears. The advance-billing clause is not controversial. Most professional services in adjacent fields (consultancy, law) bill in advance as a default. The clients who push back on this tend to be clients who push back on a lot of other things, and the pushback is a useful signal.

The studio has to be willing to pause work if the invoice is not paid on time. This is the part most small studios find difficult. The willingness to enforce the terms is what makes the terms work. Studios that send polite reminders for three months and then quietly absorb the loss are training their clients to ignore the terms.

For larger projects with milestones, the same logic applies. Invoice the milestone on the day the milestone is committed, not the day it is delivered. The cash arrives in time to cover the work, not after.

This is one of those changes that the studio’s accountant has been recommending for years, that I dismissed for years as “not worth the friction with clients”, and that, when finally implemented, has paid for itself approximately every fortnight since. The friction with clients was almost zero. The change in the studio’s cashflow has been substantial.

For studios looking for the tooling, the studio runs on Xero for the books and Stripe Invoicing for the actual invoice issue. Either FreeAgent or QuickBooks would do the same job. None of which is the point. The point is the timing.

The companion post on the small print of small studios covers the contract changes that make advance billing easier to enforce.

If your studio is running close to the line on cash, this is the single change to make first. Almost everything else is downstream of having enough working capital to make calm decisions.