7 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!

Of course, 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.

When you’re not on top of your cash flow, and you 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.

I'll also touch on when to chase clients for payment, and cover some of the challenges of being paid early!

Invoice factoring is where you essentially sell your invoices to a third party, who gives you the money up-front and then invoices the client directly.

Of course, there will be a fee for this service, which will be dependent on a number of factors and will vary by lender.

Reducing cash flow risk

In order to reduce cash flow risk you need 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, or as other people will have you believe!

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 my 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 7 things that you can do right now to improve your cash flow situation:

01 Invoice in advance

In my consulting business we provide a subscription-based service on a 12-month basis.

Because the service is sold to medium and large businesses,  payments terms tend to be on the long side and set by the client. These can be 90-days terms.

To reduce the impact, I invoice in advance at the start of each month. This means I've effectively reduced the term to 60-days, whereas if I invoiced at the end of the month, I could be waiting 120 days!

When working with clients who demand long payment terms, try and identify options to minimise the impact.

Don't believe the 'gurus' out there who say you should only ever get paid on your terms, and that those terms should be immediate.

Most of the people spouting this advice have never actually sold to large corporates. Instead, their client base is made up of mostly solopreneurs desperate for their worldly advice.

In that scenario they can get away with demanding payment on invoicing. 

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02 Invoice in full on order

If you have payments terms that exceed the time a project will take to complete, then you should only ever invoice in full in advance.

For example, you're engaged to undertake an IT Strategy. It will take you 30 days to complete, yet the client's payment terms are 45 days. 

In such instances, always invoice in full on order.  

You don’t need to have received the fees before you start (subject to your own assessment of the risk of the client not paying), but you do need the invoice to be in the system.

You will still ned to wait 45 days to get paid, but that's better than waiting until you've completed the work before invoicing, which would result in waiting 75 days until getting paid! 

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03 Ensure payment milestones are unambiguous

Sometimes it may be appropriate to offer to invoice your client when the project is completed.

But this represents a significant risk.

For one, is it clear what the definition of 'complete' is.

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.

The client may consider 'complete' to mean once they are satisfied, whereas you may have meant submission of the first draft.

To avoid this, ensure your payment milestones are unambiguous. Not just in terms of when, but also why.

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’.

I’ve never not had an invoice be paid, but there will be instances when a client disputes completion. 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. 

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04 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 that they have some control.

That’s why I typically 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)

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05 Match your client payments terms to your subcontractors and partners

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 payment terms that result in a delay before payment, you should ensure those terms are matched by any of your subcontractors and suppliers.

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

One way I manage this when I need to use contractors (who typically expect to get paid weekly!) is to leverage a recruitment agency with which I have a very long-term relationship. 

Because of the value of that relationship, they will always match my payment terms. Of course, this is ok for them to do as they are taking a margin on the contractor, and they can flex that margin in accordance with their perceived risk. 

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06 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. The consultancy had a previous contractor who had abruptly left, leaving them in the lurch.

In an attempt to de-risk their 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.

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07 Always know the client's invoicing settling process

Incurring payment delays can be your worst nightmare if cash flow is tight.

I once had to wait 192 days for a sizeable invoice to be paid! 

At the time I was fortunate in that I had a spread of other projects and clients that enabled me to weather the cash flow challenge.

I was still able 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 contractors walking off site if I didn’t pay them.

The reason for the delay turned out to be our own fault! We'd sent the invoice to the wrong person! Even though it was the same person we’d always sent them to previously, internal processes had change and our invoice fell through the cracks!

Their new process was clearly laid out in their T&C’s. We just missed it!

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 main contact at 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.

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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 1 week before chasing it.

Often it’s just sitting with someone senior to authorise payment. Usually, a quick nudge by phone or email is sufficient to get the ball rolling.

Be 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 chasing payment, and to cut a long story short, we ended up reducing the bill by over £400k. Ouch!

Never invoice late!

Invoicing late can also cause the client problems too.

Projects are typically paid from budget that is freed up in any one period. If your invoice goes in too late, say it spans financial years for example, then it can cause the client problems.

Regardless of how timely your client pays invoices, you must always submit your invoices on schedule. 

Is there such thing as being paid too early

Unexpectedly, there’s also a risk when getting paid 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 is typical, and it can lead to a rush to spend budget towards the end of the year.

That's why you often see hardcore salespeople “goal hanging” with client near the end fo their budget cycles!

But, whilst it can be great for the salesperson, it can be a nightmare to manage the delivery.

Let’s explore this a little further.

You're in luck and the client needs to spend some budget. They ask you to invoice £10k the details of which you'll sort out later.

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. Here's what can happen:

  1. The client calls 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. Worse is if you’re in a famine period. You're in a desperate need to accrue more revenue, but now your team is tied up delivering a project for which you've already accrued (and probably spent!) the revenue.
  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 frm the accrued revenue must be delivered i.e. 3 months.

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.


Cash flow is critical to the success of your consulting business.

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

The 7 things you can do to improve your cash flow situation are:

If you have other tips and strategies, let us know in the comments below. 

Or, if any of these are a revelation to you, let us know too. 

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