Cash flowing out of a tap

When we first started our business in 2009, gaining assistance from our bank was our biggest hurdle as it was also in the middle of the GFC. Even though personally we were in a great financial position and we had previously had high income permanent jobs, as soon as we become self-employed the bank treated us very differently.

Whilst this was difficult as we really wanted the bank to back us, our ideas and our experience, it took us a good three years before the bank actually realised that we did have a great business, that it was very healthy and profitable. To an extent I do appreciate why the bank was so reluctant to loan us money to build our business as so many small businesses don’t make it within those initial years, but it didn’t make it any easier for us during this time as we constantly had to juggle money across accounts to ensure we kept on top of both our business and personal finances!

As difficult as this was, it did teach us some very valuable lessons around how we structured our payment terms, invoicing frequency and managing our debtors. Now in our fifth year of business we fortunately don’t have to be quite so rigid about managing our bank balances from day to day, but we still do follow the same strategies to ensure we receive payment from our clients.

Here are some of the strategies we have implemented to assist us with managing our cash flow:

      • 7 day payment terms; to some this may seem to short but the reality is that you are a small business and you need the cash. You might be surprised at just how many of your clients really value what you do and will arrange payment for you in 7 days
      • Ensure you are clear on the project/job scope, rates and costs within your proposals. Make sure your terms are not vague and can be misinterpreted which can cause delays in agreement or expectations
      • For small to medium lump sum jobs, request that all invoices are paid in advance. There are obviously some clients who don’t agree to these terms (particularly government), but this is our starting point and we work down from there for these clients. For example they may have progress payments of 50%, 25% and 25%, rather than 100% upfront. The difference with government payments is that you know you will get your money, often it just takes a little longer. It is also important to note that with government organisations they often have policies in place ensuring small business owners are paid within a defined time period
      • Where possible, avoid milestone payments as you can guarantee a client will find a reason to delay payment that may be due to circumstances outside of your control
      • For long term time and expense engagements, invoice on a regular basis; at least monthly, but preferably every fortnight. Ensure your invoice clearly details the tasks and hours completed within that timeframe
      • Be very clear on expectations around what costs are included within the proposal costing and what are not. This is particularly important when travel and other disbursements are involved
      • Have a debtor management procedure in place that details what needs to be done if you haven’t received payment after a certain timeframe. Create different processes for different scenarios so that you know what you need to do if the situation arises
      • Send out statements of account monthly to your clients who haven’t paid (I prefer about the 20th of the month as this is just prior to the end of month accounts payable cycle for many businesses)
      • Don’t put all your eggs in the same basket with the one client – particularly if they are not good with payment. Minimise your risk by working on projects with several clients and across different industries
      • Don’t continue to work for clients who don’t pay. Put a limit in place and don’t go beyond this with further work until they agree to make payment
      • If you have a client who is notoriously bad with payment in the past, then make it clear that you will not do the work unless they pay you upfront. It may sound harsh, but it beats the reality of doing the work and not getting paid!
      • Expect to invoice regularly and ensure this accountability with your project managers. If cash flow is tight, raise the invoices as soon as appropriate for that job – do not leave for a month or two and then expect payment within 7-14 days


Most people don’t like chasing debtors, but you’ve got to get past this and follow up. You will usually find that the invoice has been misplaced or hasn’t been approved so you just need to re-send and ask them to advise when you should expect to receive payment. The majority of the time they will do this. There are times when you will have to chase payment, but just remember the clients are the ones that should feel uncomfortable about this, not you. You are just asking for payment for products or services you have delivered that you are entitled too.

I think it is important to point out that even when cash flow it tight that you always ensure your employees and contractors are paid on time as you want to maintain these relationships and your commitment to paying on time. Sometimes when you are just starting out and haven’t built the cash reserves this can be difficult, but just prioritise your payments.

Setting expectations around payment terms is something you need to do right from the initial engagement as this sets the precedent going forward with future work with clients. Once you start to compromise and allow payments to be more flexible it becomes a lot harder to negotiate and alter this arrangement!