Cashflow for professional practices: matching debtor days, payroll and debt

Professional services practices should align debtor days, payroll and working capital by first mapping how long cash is locked up in WIP and debtors, then matching this to wage and rent cycles and sizing facilities to cover only that structural gap. That means tightening billing and collections, using a disciplined overdraft or line of credit, and keeping partner drawings stable so you’re not quietly using home loans as the real overdraft.

In a week, you can sketch your cash cycle, test whether your current limit matches the real gap, and decide what to fix or refinance.

Understanding where cash gets locked up is the first step to sizing facilities.

1. How cash really moves in a professional services practice

1.1 The core pattern

Most accountants, lawyers, medical specialists and consultants share the same pattern:

1. You pay wages weekly/fortnightly. Often 50–70% of total costs.
2. You bill monthly or at milestones. Then wait 30–60+ days to be paid.
3. Partners draw monthly or quarterly. Often based on last year’s results, not this quarter’s cash.

That gap between when you pay people and when clients pay you is what your working capital facilities must safely cover. If they’re too small, you raid tax money or home‑loan redraw. If they’re too big or messy, they hurt your borrowing power and put the family home at risk (see /insights/working-capital-basics-structures-costs-safe-limits).

1.2 Typical numbers for practices

These are indicative only, but they frame the problem:

• Debtor days: 45–70 days common for accountants/lawyers.
• Payroll: weekly/fortnightly, often 40–60% of fees.
• Rent and other overheads: monthly.
• Partner drawings: monthly/quarterly, often lagging reality.

If you run $400k per month in fees and carry 60 debtor days, you may have $800k in unpaid invoices at any time. A 10% slip in collections is an $80k hole.

2. Mapping debtor days vs payroll: a 13‑week view

2.1 Build a quick 13‑week cashflow

You don’t need a full three‑way model; for this week, build a simple 13‑week sheet:

• Row for cash in: expected receipts by week.
• Rows for cash out: wages, rent, suppliers, tax, drawings, loan repayments.
• Row for net movement and cumulative bank balance.

Within two hours you’ll see where the overdraft peaks and whether that matches your actual limit or a past rule of thumb. This exercise links directly to the patterns outlined in /insights/industry-specific-working-capital-patterns-risks.

2.2 Worked example: suburban law firm

Assume a three‑partner suburban firm:

• Fees: $500k per month (incl. GST).
• Debtor days: 60 days.
• Wages (lawyers + staff): $250k per month, paid fortnightly.
• Rent/overheads: $80k per month.
• Partner drawings: $90k per month total.

Roughly, each fortnight you pay $115k in wages and $40k in other costs (~$155k). But client money from last month is still coming through slowly.

If receipts fall 15% for two months (seasonal slowdown, a big matter pauses), cash in drops $75k per month. Over 8–10 weeks, you’re short $140k–$180k unless you:

• Tighten collections, or
• Cut drawings, or
• Use a working capital facility.

An overdraft sized at $200k–$250k could comfortably cover that temporary gap. A $500k limit with no rules on drawings will just encourage over‑distribution and hurt home‑loan capacity, because lenders usually assess the whole limit, not just what’s drawn (see /insights/restructuring-overdrafts-working-capital-before-home-loan).