Finance for marketing and creative agencies

Our current funding partner doesn't take marketing, advertising or creative agencies right now. That's on us, not you. This page won't introduce you to anyone, but it will explain how finance works for an agency, which products fit, and how to check what an offer costs before you sign one elsewhere.

The cash-flow shape of an agency

An agency sells people's time, so payroll is the big fixed cost. Income arrives in three ways, each with its own timing.

• Retainers. Monthly fees, ideally billed in advance. The steadiest income an agency has, until a client gives notice.
• Projects. Websites, campaigns and rebrands billed in stages. Delays in sign-off push invoices back.
• Media pass-through. Ad spend you buy on a client's behalf. This is where agencies get caught.

Media is the risk. Ad platforms charge your card or account as the spend runs. The client pays your invoice on their terms. For business-to-business deals an agreed payment date must usually be within 60 days. On a large account, that gap can be bigger than your whole month's fee income, and your margin on the media may be thin.

Which finance fits, and which doesn't

The cleanest fix for media is contractual, not financial: have clients pay media in advance, or pay the platforms directly. Funding a client's ad spend with your own borrowed money means paying interest to carry their bill.

Merchant cash advances seldom fit: clients pay by bank transfer, so an advance would be collected by fixed debits, and the cost is high for a business whose main asset is a contract book.

What it costs: a worked example

Say an agency borrows £50,000 to cover a gap and is offered a factor rate of 1.35 over about 6 months, collected daily.

• You repay £67,500 in total.
• That is roughly 126 daily payments of £535.71.
• The cost is £17,500.
• As an APR, that is about 126%.

Sterling's rule of thumb puts anything over 100% APR in "very expensive" territory. If the gap is a client's media bill on which you earn a small margin, the finance cost can exceed the margin several times over. Compare a loan of £100,000 at 18% APR over 24 months: £4,992.41 a month, £19,817.84 of interest. The offer checker on this page shows where any quote sits.

When clients pay late, the law helps. On business-to-business debts you can claim statutory interest at 8% plus the Bank of England base rate, unless your contract sets a different rate, plus a fixed sum of £40, £70 or £100 depending on the size of the debt.

What funders typically ask an agency for

• Filed accounts and up-to-date management accounts.
• A client list with retainer values, contract terms and notice periods.
• An aged debtor list, with media and fee invoices shown separately.
• Bank statements for the last several months.
• Customer concentration: how much revenue sits with your top client.

Red flags specific to agencies

1. Media counted as turnover. Gross billings that include pass-through media make an agency look bigger than its fee income. Finance sized on billings is sized on money that goes straight out.
2. One client, most of the fees. A retainer on 30 days' notice is weak security, and funders will price it that way.
3. Expensive money to front a client. If the client won't pay media up front, ask what happens if they don't pay at all. You would still owe the platform and the funder.

Limited companies only

Many freelancers and small studios trade as sole traders. Ask Sterling only ever works with limited companies, because introducing sole traders and small partnerships is regulated credit broking. Business finance for limited companies is not regulated by the Financial Conduct Authority, so the agreement is your protection.