In my nearly 20 years of working with businesses, one thing that I’ve consistently seen is how service-based businesses are more susceptible to bad debts than those that sell goods.

When you think this through, it makes sense. When a business sells a good, they’ll rarely hand it over until they’ve been paid. That way they can protect their revenue stream by withholding delivery. If the sale falls through, the business could then sell that product to someone else.

Service-based businesses, however, don’t always have this same protection mechanism, as you’re selling a person’s skill and labour, not a product that can be withheld.

Even when a service accompanies the supply of a tangible product, there’s often a large component of time invested. Once that time is spent, you can’t recover it by simply selling it to someone else if the original client doesn’t pay.

This requirement in the service industry to invest large amounts of time and physical labour before the “job is done” can leave your business not only at risk of getting paid late, but at risk of never getting paid at all. If this happens enough [especially to smaller businesses], you may find yourself in serious financial stress with a huge Accounts Receivable balance.

 

5 ways to protect your revenue + cashflow 

 

1. set clear contracts or engagement terms  

The best way to safeguard your position is to have a clear contract or service engagement with terms and conditions. These agreements help to set clear expectations for both your business and your clients. At a minimum, they should: 

  • List the services to be provided and a timeline for delivery. 
  • Detail how much you will charge for the service [whether a fixed fee or an hourly rate] and how often you will bill. 
  • Detail payment terms and invoicing procedures. 

Tip: Having these details in writing helps reduce the risk of disputes over invoicing, payments and deliverables. 

As a business owner, you should also update your engagements if the scope ever changes.  

 

2. run credit checks for large projects 

For business owners, the more you know about your clients, the more informed your choices can be when deciding who to work with and how to engage with them. Running credit checks helps you assess a client’s financial health and credit worthiness before you start. 

A credit check will provide details including payment habits, outstanding debts and credit score. This information helps you assess the risk of non-payments or late payments, which will help you decide whether to proceed and what invoicing and payment terms apply. 

If after your research, you discover the client is risky, this doesn’t mean you have to say no to working with them, but you should put the mechanisms in place to protect yourself [this could include regular invoicing or tighter payment terms, to name a few].  

You should do this regardless of the risk associated with the client… you never know what may happen in the future. 

  

3. invoice regularly  

Once your agreements have been signed and you begin to deliver work, your invoicing needs to be consistent and regular to minimise any damage if your client can no longer pay you. The more often you invoice and get paid, the better.  

You can identify clear milestones for raising invoices, these can be either time bound [say every month] or based on milestones/deliverables. 

Regular invoicing helps maintain a steady stream of income and reduces the risk of non-payment, especially for engagements that may take several months. 

It also gives you an opportunity to communicate with your clients. Your invoicing can include details about the work completed and provide a progress update. This keeps your clients informed and engaged! After all, prioritising engagement of both newly onboarded and existing clients increases sales, promotes branding and strengthens loyalty, so it’s something you want to commit to. 

If you’ve underquoted a job, don’t panic! It’s an easy mishap to correct by simply [and quickly] communicating with your client. This way, your client won’t be in for a surprise if an invoice is higher than what was expected. 

Ensure your engagement letter includes a clause that allows for fee variation if the scope or circumstances change. Surprise invoices often hang around longer in the debtor ledger, as clients were not prepared to pay for them. 

  

4. stop work  

If you find yourself in the unfortunate situation where a client has stopped paying you [but you still have work to deliver], you may consider stopping work until your outstanding invoices have been paid. Deciding whether to stop work will depend on your circumstances, the length of the client relationship and your contract terms. 

Before stopping work, you should always review the terms outlined in your engagement agreement or contract with your client. If your contract details payment milestones, deadlines, or terms, you can evaluate whether the client’s non-payment is a breach of the agreement. In some cases, you may have the right to suspend work until payment is received. 

Before taking any action, you should always communicate with your client about the outstanding payment. It’s possible that there could be a misunderstanding or a valid reason for the delay.  

You might also consider offering alternative solutions, such as: 

  • negotiating new payment terms,  
  • requesting a partial payment upfront, or  
  • reaching a compromise that allows work to continue while addressing the payment issue. 

  

5. take payment details upfront [if possible] 

Another great way to mitigate the risk of non-payment is to take payment details from your client upfront using a merchant facility.  

 

if you operate a fixed fee business: 

Taking payment details should be a straight forward process. If you’ve already confirmed the price for services, explained your payment terms and your client has agreed, it should be smooth sailing to collect the details and have control over your cashflow. 

 

if you operate on a monthly recurring fee basis [similar to a retainer]: 

In this case, being in control of the payments process is a must. You never want to find yourself in a situation where you’ve agreed upon a monthly fee, are supplying ongoing services to your client, but they’re failing to pay you. 

By taking your clients’ payment details upfront and automatically processing their payments each month, you’ll ensure that your cash flow never suffers. Plus, you can avoid the unpleasant situation of having to put a halt on work an invoice hasn’t been paid. 

 

if you operate on time-based billing 

Simply provide your clients with a price range or an hourly rate, all of which can then be billed on completion once the work has been finalised. 

 

You can also eliminate client pushback by implementing a policy of taking payment on the invoice due date rather than the date you raise the invoice. This gives your clients time to raise any questions between the job completion date and the due date of the invoice. It also provides enough transparency and clarity to make them comfortable. 

 

what next?

 

Once you’ve put these revenue + cashflow protections in place, turn to consistency and monitoring. We recommend you:

  • align your team on the processes,
  • standardise your templates,
  • automate payments and reminders,
  • monitor your debtor ledger, and
  • track your Day Sales Outstanding [average accounts receivable/total credit sales x number of days in period].

 

we’re here to help

 

If you need more help protecting your revenue and cashflow contact our team at oneplace@businessdepot.com.au or give us a buzz on 1300 BDEPOT.

 

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Article originally published on 5 September 2023 and updated on 11 September 2025.