Dear Commercial Acuman...

Dear Commercial Acuman...
Our largest client has recently switched its marketing spend from a centralised retainer to decentralised projects across a number of profit centres - how should we respond?

From a cash flow perspective, this is something of a perfect storm - you have gone from clear cash inflow visibility to high uncertainty; instead of guaranteed, large, regular inflows, you now have much higher volatility of revenue and therefore cash flow.

Add in the fact that it’s your largest client and the general trend to extent payment terms and your risk is much higher.

So what can you do about it?

If all profit is a function of risk, then conversely higher risk means you need to be asking for a higher return.

This means having a negotiation with your client(s).

You cannot win a negotiation that you are not prepared to walk away from, so you'll need to review all your new decentralised clients and decide which, if push came to shove, you could cope with losing.

The one you choose is likely to be a financially small, low margin, difficult client. If the client is extremely happy with your services and your closest competitors are conflicted out, so much the better.

You will also need to be talking to a decision-maker rather than a gatekeeper in order to be able to have an open and honest business conversation.

You should explain the cash flow challenges you now face and start a discussion about how your client might be able to help you address them.

As a first step, you need your client to acknowledge that failing to solve this issue satisfactorily has the potential to lead to you walking away from the business, so it's in both your interests to find a workable solution.

Invite your client to offer suggestions that might help - you might be pleasantly surprised at what they can come up with, but you might look for:

  • more-regular, longer-term work planning / guaranteed work streams on a rolling 6-month basis to increase your cash visibility
  • an increase in your rates to reflect the higher risk profile (your previous rates effectively included a discount for the centralised retainer)
  • a specific cash flow charge to the client; work out the cash flow cost of the new arrangement (borrowing/ factoring cost * average balance * days) and bill it to the client as an add on-cost

Don't accept a vague promise of possibly more work in the future if you just suck this up now - the additional work may not materialise and could simply serve to exacerbate your cash flows difficulties if / when it does arrive.

And beware the client that asks for a confirmed rebate structure in return for a promise of additional work without addressing your current business issues.

As with all negotiation, you'll need to think about what your client wants to get out of it, what flexibility they have to move and how you can structure an arrangement that helps them meet their personal goals as well as getting you out of a hole.

Once you start working collaboratively on a joint solution, you both become invested in succeeding together.

Finally, you also want to move the conversation as far as possible from cost to value.

If you are not already doing it, you should offer the client a regular value statement of value created. Get someone who is imaginative and close to the client business to look at all the things you have done to add value to their business - be it proactive proposals, training delivered or demonstrable increases in value.

You should quantify the value to the client (not the same as the cost to you) of all these and present them on as regular a basis as you can.

A regular value statement could be your “sweetener” in return for a better deal on cash flow; you might offer a “lite” version free for 12 months, then review to see whether the client wants to continue with it, or even invest in a more-thorough paid version. You may find that a regular value statement has the pleasant effect of bringing you closer together on working to maximise value and uncovers new opportunities for you.

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