A practical cash-flow guide for service businesses, contractors, and agencies
If you’ve ever run payroll before your clients paid you, you’re not alone.
This is one of the most common (and stressful) cash-flow problems we see with small businesses—especially contractors, professional services firms, and growing teams.
The good news? Fronting payroll is fixable. Let’s break down why it happens and what you can do to stop it for good.
Why Businesses End Up Fronting Payroll
Most payroll issues don’t come from low profitability—they come from timing.
Here’s the usual setup:
- You pay employees weekly or bi-weekly
- Clients pay you Net 30, Net 45, or “whenever”
- Payroll hits before cash hits the bank
That gap forces owners to:
- Dip into savings
- Use credit cards or lines of credit
- Delay paying themselves
- Stress every payroll run
If this feels familiar, keep reading.
Step 1: Fix Your Invoicing Timing (This Is Huge)
The fastest way to reduce payroll pressure is to invoice earlier and more often.
What to do instead:
- Invoice weekly or bi-weekly, not monthly
- Send invoices immediately when work is completed
- Use progress billing or percentage-of-completion billing
💡 If payroll runs every two weeks, your invoices should at least match that rhythm.
Step 2: Require Deposits or Prepayments
If you’re paying people before you’re paid, the risk is on you, not the client—and that’s backwards.
Better options:
- Upfront deposits (25–50%)
- Retainers for ongoing services
- Prepaid blocks of hours
- Milestone-based billing
Even a partial upfront payment can completely eliminate payroll shortfalls.
Step 3: Shorten Your Payment Terms
Net 30 sounds “normal,” but it’s brutal for cash flow.
Consider switching to:
- Net 7 or Net 14
- Due upon receipt
- Auto-pay with saved payment methods
You can still be professional and protect your cash.
👉 Pro tip: New clients should always start on tighter terms. You can loosen later.
Step 4: Enforce Payment (Without Being Awkward)
Late payments only happen when there are no consequences.
Put systems in place:
- Automatic payment reminders
- Late fees written into your contract
- Work pauses if invoices go unpaid
- Clear collections follow-up process
This isn’t being aggressive—it’s being a business owner.
Step 5: Build a Payroll Buffer Account
Even with great billing practices, you should never rely on “future payments” to cover payroll.
Best practice:
- Maintain 1–2 payroll cycles in a separate cash reserve
- Treat payroll cash as untouchable
- Rebuild the buffer immediately if it’s used
This one move dramatically lowers stress and risk.
Step 6: Know Your True Payroll Cost
Payroll is more than just wages.
Make sure you’re budgeting for:
- Employer payroll taxes
- Benefits
- Workers’ comp
- Payroll software and admin costs
If payroll regularly eats more cash than expected, pricing may be the real issue.
Step 7: Align Pricing With Cash Flow Reality
If you’re constantly fronting payroll, it’s often a pricing problem, not just collections.
Ask yourself:
- Are projects priced with payment timing in mind?
- Are margins high enough to support payroll cycles?
- Are you discounting too aggressively?
Strong pricing + smart billing = predictable payroll.
Final Thoughts: Payroll Should Never Be a Surprise
Payroll should feel boring, not stressful.
If you’re consistently fronting payroll:
- Your billing structure needs adjusting
- Your payment terms are too loose
- Your cash flow systems need tightening
Fixing these doesn’t require more revenue—it requires better structure.
Need Help Fixing Cash Flow & Payroll Issues?
At Accounting Fresh, we help business owners clean up their books, tighten cash flow, and design systems so payroll runs smoothly—without panic.
If payroll stress is eating your time (or sleep), it might be time for a reset.
Carlsbad & San Diego business owners—this is one of the most common issues we fix.