Table of contents5 sections
- Settling event advance payments: how to control client payments and payments to subcontractors
- Why a client’s advance payment does not always secure the event budget
- How to put event advance payment settlement in order
- How we solved this problem in Administy
- An advance should finance the project, not just improve the account balance
Settling event advance payments: how to control client payments and payments to subcontractors
Organising an event means incurring costs long before it starts. You have to book the venue, pay advances to suppliers, and order technical equipment, production, stand construction, transport, catering and staffing. Meanwhile, the client often pays in stages, and part of the payment arrives only after the event has taken place.
We know what it is like when a project has a high value on the contract, but there is not enough money in the account for the next payments. The client has paid an advance, yet most of that amount has already gone to subcontractors. The next instalment has not arrived, and suppliers expect payment before the event.
That is exactly why settling event advance payments cannot be limited to checking whether the client has made the first transfer. You need to know:
- what the full value of the contract is,
- how much has already been invoiced,
- how much money has actually arrived,
- which costs have already been paid,
- which invoices and payments the company is still waiting for,
- how much money is needed to finish the project,
- whether the advances collected cover the nearest payables.
Without such a picture, an agency can deliver a profitable project and still lose liquidity before it is finished.
Organising an event means incurring costs long before it starts. Meanwhile, the client often pays in stages, and part of the payment arrives only after the event has taken place.
Why a client’s advance payment does not always secure the event budget
Receiving an advance can create a false sense of security. If the funds are not assigned to a specific project and cost schedule, it is easy to use them for other obligations or wrongly assume they will be enough to deliver the whole event.
An advance looks like free cash
The client’s payment increases the account balance, but it does not mean the whole amount is available for the company’s day-to-day needs. A significant part of these funds may already be earmarked for:
- booking the venue,
- producing the stand construction,
- hiring the stage, screens and sound system,
- transport and logistics,
- catering,
- technical support,
- hosts and staff,
- accommodation,
- promotional materials,
- subcontractors’ fees.
If a company does not separate project money from general operating cash, it may unknowingly use the advance for other expenses. The problem comes to light only when the next invoice connected with the event arrives.
Client and supplier payment terms are not synchronised
A client may have a payment term of a dozen or several dozen days. A subcontractor, on the other hand, may require:
- a partial prepayment on booking,
- full payment before the event,
- payment immediately after delivery,
- an advance to buy materials,
- settlement of additional costs at short notice.
This means an event agency often finances the gap between paying out funds and receiving the client’s next instalment.
A project may have a planned margin, but if the payment schedule is unfavourable, the company still has to have its own working capital. Otherwise it starts covering the costs of one project with money from another job.
Some costs appear only during delivery
An event budget changes dynamically. The client increases the number of attendees, adds a new attraction, expands the catering or modifies the programme. A supplier charges extra for transport, overtime or installation.
If a change is not entered into the budget straight away, the initial advance may stop matching the project’s real needs.
Particularly dangerous are expenses that:
- have already been agreed, but the invoice has not yet arrived,
- were ordered verbally or in a message,
- were not added to the cost estimate,
- appeared after the budget was approved,
- must be paid before the next invoice is issued to the client.
The company looks at revenue, not project cash flow
The value of a contract does not say how much money the agency has at its disposal today.
A project can look like this:
- contract value: 200,000 PLN,
- planned margin: 40,000 PLN,
- invoices issued: 120,000 PLN,
- payments actually received: 70,000 PLN,
- costs already paid: 65,000 PLN,
- costs needed to finish: 80,000 PLN.
In terms of sales, the project looks good. In terms of the agency’s cash, however, there is not enough money to finish delivery without tapping its own financing.
Profitability does not protect liquidity if money arrives later than suppliers have to be paid.
How to put event advance payment settlement in order
An effective process should combine the contract, the invoicing schedule, actual inflows, planned costs and payments to subcontractors.
1. Separate the contract value, invoices and actual payments
These are three different pieces of information that should not be used interchangeably.
For each project you need to control separately:
- contract value – how much the client will pay for the whole project,
- amount invoiced – what part of the fee has already been settled with a document,
- amount paid – how much money is actually in the account,
- value remaining to be invoiced,
- receivables awaiting payment.
This way the owner or Project Manager does not assume that money is available just because an invoice has been issued.
2. Build a schedule of costs and payments
A budget should not be only a list of planned expenses. Each item should include:
- the supplier’s name,
- the net and gross amount,
- the planned payment date,
- information about any advance required,
- the order status,
- the invoice receipt status,
- the approval status,
- the payment status,
- the person responsible.
Such a summary shows not only how much the project will cost, but also when the money will be needed.
3. Tie client instalments to milestones
The payment schedule should secure financing for the subsequent stages of delivery.
An example model might include:
- a first advance after the contract is signed,
- a second instalment before production starts,
- a further payment before installation or the event,
- a final settlement after delivery.
The size of the instalments should follow the actual cost schedule, not an arbitrary split of the contract value.
If 80% of costs have to be incurred before the event, collecting only 30% of the contract value from the client does not secure the project.
4. Keep the cost to complete the project up to date
It is not enough to monitor invoices that have already arrived. You also need to include costs that are:
- ordered, but not yet invoiced,
- agreed with subcontractors,
- arising from signed contracts,
- expected on the basis of the schedule,
- added as a result of scope changes.
This way the company knows not only the cost incurred, but also the cost to complete the project.
This makes it possible to answer the question: will the funds already received from the client and the planned further inflows be enough to finish the event?
How we solved this problem in Administy
In our own agency projects we, too, incurred external costs before receiving the full fee from the client.
We paid for specialists’ work, licences, production, technology services and subcontractors. At the same time, invoicing the client depended on the project schedule, the completion of a stage or formal acceptance.
At first we looked mainly at the contract value and the planned margin. The problem appeared when costs had to be paid earlier, while the client’s money was still only an issued invoice.
That is why in Administy we separated:
- the full contract value,
- amounts already invoiced,
- funds actually paid in,
- costs incurred,
- planned expenses,
- the cost needed to finish the project,
- the current and forecast margin,
- cash gap.
As a result we do not treat an invoice as money we already have. We see what part of the revenue has been invoiced, what part has reached the account, and how much cash is still needed to close the project.
In practice, such a view lets us notice earlier that:
- the advance has already been mostly used up,
- the client’s next instalment should be invoiced earlier,
- the client’s payment term does not match the supplier’s,
- the project needs additional financing,
- a scope change has increased the cost of delivery,
- the next payment to a subcontractor will exceed the available funds,
- a profitable project can generate negative cash flow.
Administy lets you assign revenue and costs to specific projects, and then compare the contract value, amounts invoiced and paid, cost to complete, margin and cash gap. With ongoing monitoring, the business owner sees how much money is needed for the project to be closed safely.
It is not only about reporting after the event. The greatest value comes before delivery, when it is still possible to:
- bring forward the issue of the next invoice,
- ask the client for an additional instalment,
- renegotiate the term with a supplier,
- stop a cost that has not been approved,
- settle a scope change,
- secure financing,
- avoid covering the project with funds from other jobs.
An advance should finance the project, not just improve the account balance
Well-designed settlement of event advance payments gives an agency control over what has already been paid, which obligations will appear in the coming days, and whether the project has enough financing to be completed.
The contract value alone does not provide security. You need invoices, actual payments, planned costs and subcontractors’ deadlines combined in one process.
Administy helps separate the value of sales from the money available in the account and shows how much is needed to finish each project.
Contact the Administy team and see how to bring advance payments, subcontractor costs and the cash flow of event projects together in one place.
