5 invoicing tips to improve cash flow…

And why getting paid in advance can cause problems!

Making a sale, but then going bankrupt before you’ve delivered the project, is a fool’s errand!

A significant challenge in running any consulting business is cash flow.

If you’re not on top of your cash flow, you’ll end up having to borrow money. Whether that’s a traditional loan or overdraft, or by using invoice factoring.

Invoice factoring is where you essentially sell your invoices to a third party, who gives you the money up front and then chases payment on your behalf. Of course, there will be a fee for this, which will be dependent on a number of factors and will vary by lender.

And if you’re not on top of your cash flow, and don’t have the ability to borrow, then you’re going to go out of business!

In this blog article, I’ll explain how to de-risk cash flow with your proposals and invoicing approach.

The aim of reducing cash flow risk

The aim of reducing cash flow risk is to get paid as soon as possible. If you’re working with medium and large businesses, you may not be in as much control of the process as you’d like.

For example, one of the largest corporate clients in my consulting business has strict 90-day payment terms. I can accept them, or I can take your business elsewhere!

But what is an acceptable payment timeframe for your consulting business, and where and how do you define it?

When I started my consultancy, I initially provided my clients with 30-days in which to pay. I did this mostly because it made me feel like I was a serious business! Honestly. What a fool! I didn’t think I’d be taken seriously if I had any shorter payment terms.

However, as time went by I realised there were many different ways I could improve my cash flow, and it included changing how and when I got paid.

Here are 5 things you can do to improve your cash flow situation:

1. Invoice in advance

In my consulting business we provide Lessons Learned as a Service. The subscription term is 12 months. Because the service is bought by medium and large businesses, the payments terms tend to be on the longer side – for example, 90-days.

In an attempt to reduce the impact, I always invoice in advance at the start of each month. This means that the worst was scenario is I wait 90 days. If I invoice at the end of the month, I could be waiting 120 days!

If you have payments terms that exceed the time the project will take to complete, then you should only ever invoice in full in advance. You don’t need to have received the fees (subject to your own assessment of the risk of the client not paying), but you do need the invoice to be in the system.

2. Ensure clarity in the understanding of ‘complete’

Another temptation is to offer to invoice your client when the project is completed. But this represents a significant risk. For one, is it clear what determines a completed project?

If you are providing your client with a report, for example, it might take one or two additional drafts before the report is fully accepted. You likely won’t be in control of this process as you’ll be waiting for the client to provide their reviewed draft back to you.

To avoid this, ensure absolute clarity in what you define as ‘complete’. For example, if your end deliverable is a report, you might state in the invoice terms in your proposal that you will:

‘Invoice upon delivery of first draft’

Always ensure payment milestones are clear and unambiguous to benefit cash flow Click To Tweet

3. Break up invoicing into milestone payments

Sometimes it’s not appropriate to bill an entire project either up-front or at the end as it represents too much risk for either you or the client. In these instances, it is beneficial to break the project up into a series of milestone payments.

As a strategy consultant, I often broke my invoicing down into 3 milestones, as follows:

  • 40% on order
  • 40% on completion of the research phase
  • 20% on completion

The main aim is to cover working capital. By that, I simply mean that you bill enough money up-front to pay for the resources and any materials needed to complete the job at least up until the next invoice is due.

At the same time, it’s important that the client feels they have some control. That’s why I typically to leave an amount to the end. It should not be more than 25%, and as a rule, it should never be higher than your gross profit margin (as a consulting business, gross margin is typically >40%, so it’s unlikely you’d save this much to be invoiced at the end anyway).

I’ve never had an invoice not be paid, but there will be instances when a client disputes the completion (see point 3 below).

Now you should never offer a discount to overcome dissatisfaction. There’s always a better win/win solution.

(Read about the time a client demanded a £5,000 refund. The outcome may surprise you…)

4. Match your client payments terms to your subcontractors and partners

It is important to acknowledge that you are not a bank! You are not in the business of lending money – either to your client, your subcontracts or your partners. If you have 90-day terms (or any other terms) before you get paid, you will ideally apply the same terms to those people you have to pay.

It goes without saying that this does not include any employees/permanent staff.

In my consulting business I have a deep, long-term relationship with a specialist recruitment agency. Because of the value of that relationship, they always match my payment terms when I need resources from them.

This brings me significant benefit as contractors in the UK typically want their invoices paying weekly. The agency pays them weekly, and I pay the agency on whatever longer terms we’ve agreed.

This results in the recruitment agency taking on this risk. Of course, as a recruitment agency, their fee for this is covered by the day rate they charge me. This day-rate might be higher than the cost of invoice factoring, however, invoice factoring companies don’t have a database of contractors like a recruitment agency does.

5. Withhold a Proportion of Subcontractor Fees

Back in 1997 I was a contract Project Manager. A consultancy was looking to engage me for 3 months to project manage a Windows desktop rollout. The consultancy had a previous contractor who had abruptly left, leaving them in the lurch.

In an attempt to de-risk the recruitment of me, they offered me an attractive day-rate but kept back 20% to be paid at the as a completion bonus at the end of the engagement.

I think this idea is genius, and I have applied it many times myself when taking on contractors for consulting engagements.

Always know the payment terms you have agreed with your client Click To Tweet

It Doesn’t Always Work Out

Despite all these measures, sometimes things don’t work out as planned.

For a start, you may have contractual payment terms, but that doesn’t mean the client will abide by them. Sometimes, the right thing to do it to fire the client. But, more often than not, you need the client as much as they need you!

My worst-case scenario was having to wait 192 days for a sizeable invoice to be paid! I was fortunate because I had a spread of other projects and clients at that time. This enabled me to pay my subcontractors and team from the fees of other projects, whilst awaiting the outstanding invoice. This was a risky strategy, but less risky than risking contractors walking off site if I didn’t pay them.

The reason for the delay was because we had sent the invoice to the wrong person! It was the same person we’d always sent them to previously, so I can’t explain why it went so wrong this time. But regardless, we didn’t follow their correct process, which had been clearly laid out in their T&C’s.

I learnt that it’s critical to know the client’s invoicing process. Always find out:

  • Who must you submit your invoices to, to ensure timely payment?
  • What details must it contain? For example, the client’s PO number
  • Who should you contact if an invoice is delayed? Often you don’t want the client to be bothered with invoice payments as it’s not their immediate concern. You want the client to focus on the outcomes that you are delivering.

When to chase payment and how?

There is no right or wrong in chasing payment. In my consulting business, I don’t want clients to ever think we’re desperate for money. If an invoice is overdue, I typically wait at least 2 weeks before chasing it. Often it’s just sitting with someone in the C-suite to authorise payment. Those people are very busy. Usually, a quick nudge by phone or email is sufficient to get the ball rolling.

Be very careful though, as you can wait too long to chase payment. In a previous consultancy I worked at, we were on a multi-million-pound project with a large American bank. We’d been lax with the invoicing, and to cut a long story short, we ended up reducing the bill by over £400k. Ouch!

One of the reasons late invoicing can be a problem is that projects are paid from budget years. If your invoice goes in too late, it can span budget years and cause the client problems. There are few times that you can feel as stupid as when you put your client in this situation.

Getting Paid Too Early

Conversely, there’s a risk of getting paid too early. Let me explain…

With some of our larger clients, if a budget isn’t spent in one year, then it will be reduced the next. This can lead to a run of opportunities towards the end of the financial year. Or, as I see many salespeople do (and why not!), “goal hanging” at the client at this time of year.

But, whilst it can be great for the salesperson, it can be a nightmare to manage the delivery. Let’s explore a scenario:

The client asks you to invoice them £10k to help spend some remaining budget. What that project is will be determined later on. You’re on 30-day payment terms, so in 30 days you accrue the money.

However, you now owe the effort. You’re now in a position where you owe your client – the tables have turned. This is fine in many respects, as it happens whenever you invoice in advance and get paid before the work is undertaken.

The danger comes when the client has too long a period in which to request the project be delivered, for the following reasons:

  1. They might call off the time later in the year when you and your team are already busy. This might mean you need to delay the project, or other projects, or take on additional staff to meet the workload. That means reducing profit
  2. Even worse is if you’re in a dip on the revenue roller coaster. What I mean by that is, you don’t have much cash in the bank. At the same time, your client who paid in advance wants their pound of flesh from you, which prevents you from earning additional or new money from someone else. Its also not a nice feeling knowing that you spent money in your business that you haven’t yet earned. Trust me, I’ve been there.
  3. If the work is not clear, you’re not selling value, but time. I never advocate selling time. You may decide throughout the year to adjust your equivalent day rate. If you’ve been paid in advance, the client may expect a lower rate or more days for their money

Here’s how I manage this scenario when it arises. In theory, it’s very simple. Set a clear timeframe within which the project must be delivered- 3 months for example. Also, ensure that there’s clear agreement with the client as to what the ‘day rate’ is (This can, of course, be difficult if you don’t know which team member is required).

At the end of the day, whilst it’s not ideal to be paid this way, there are many worse things that can happen in your business. And in this scenario, you’re helping your client, which is why you started a consulting business in the first place.


So let’s recap. Cash flow is critical to the success of your business.

Through your proposals and invoicing, you can determine the best cash flow strategy for you, your client, and your subcontractors.

Five things you can do to improve your cash flow situation are:

  1. Invoice in advance
  2. Ensure clarity in the understanding of ‘complete’
  3. Break up invoicing into milestone payments
  4. Match your client payments terms to your subcontractors and partners
  5. Withhold a Proportion of Subcontractor Fees

And finally, be very clear when payment is due, and chase overdue payments – only not too aggressively.


error: Alert: Content is protected !!