Quick answer
Professional services firms such as accountants, lawyers, consultants, engineers and IT providers usually borrow to fund work in progress and debtors, partner buy-ins or practice purchases, office fit-outs and technology. Their main asset is people and client relationships rather than equipment, so lenders focus on fee history, debtor days, client concentration and the partners' personal positions. Lines of credit, term loans and invoice finance are common.
Key points
- Cash is tied up in unbilled work and unpaid invoices.
- Partner buy-ins and practice purchases involve goodwill.
- Lenders look at debtor days and client concentration.
- Few physical assets means guarantees and property security are common.
At a glance
- Typical needs
- Work in progress, debtors, buy-ins, fit-outs, technology
- Common facilities
- Line of credit, term loans, invoice finance, secured loans
- Lender focus
- Fee history, debtor days, client concentration, partner positions
- Watch for
- Large unbilled work and slow collections
In a professional services firm, the product is time and expertise, and the cash cycle is shaped by how quickly that time turns into invoices and how quickly clients pay them. A firm can have a full workload and a thin bank balance if work sits unbilled for weeks and invoices sit unpaid for months. Finance helps, but billing discipline often helps more.
Where cash gets stuck
| Stage | What delays cash |
|---|---|
| Work in progress | Time recorded but not yet billed |
| Billing | Monthly or milestone billing cycles |
| Debtors | Client payment terms and slow payers |
| Write-offs | Disputed or unrecoverable fees |
Measuring lock-up (work in progress plus debtors) in days is one of the clearest ways to see how much cash your firm is funding for its clients.
Finance that fits professional firms
- Lines of credit and overdrafts for the gap between work and payment.
- Term loans for partner buy-ins, technology projects or fit-outs.
- Business acquisition loans for buying a practice or book of clients.
- Invoice finance for firms billing business or government clients on terms, where accepted.
- Secured business loans when principals offer property for larger amounts.
What lenders look at
Because professional firms own few physical assets, lenders lean on financial statements, fee history, debtor days, client concentration and the personal positions of the principals. A firm with recurring clients, steady fees and quick collections reads well. A firm dependent on one or two large clients, or with a growing debtor book, raises questions. Expect director or partner guarantees for most facilities.
Reduce the need before you borrow
- Bill more often: fortnightly or on milestones rather than monthly.
- Ask for retainers or deposits on large engagements.
- Shorten payment terms on new engagements and follow up promptly; business.gov.au’s invoicing guidance covers good practice.
- Offer easy payment methods.
Our guide to options for slow-paying customers lists practical steps.
An illustrative example
A made-up engineering consultancy works on government infrastructure projects billed monthly on 30-day terms. Payroll runs fortnightly. The firm uses a line of credit sized to roughly six weeks of salaries, and moves its larger clients to fortnightly billing, which shrinks the gap. When a senior engineer buys into the partnership, a separate term loan secured against their home funds the buy-in.
Strengthening a professional services application
Because professional firms have few hard assets, lenders lean on the quality of information. Bring recent financial statements, a debtors ageing report, a summary of work in progress, client concentration figures and the partnership or shareholder agreement. If funds are for a buy-in, include the valuation method and the terms on which the incoming partner will share profits.
Show how fees have trended over several years and explain any large swings, such as a major client finishing a project. A firm that knows its lock-up days and can show it is managing them reads as a lower risk.
Questions to ask before you borrow
- How much of the need would disappear if billing were faster?
- Does the facility have a review date, and what triggers a change in the limit?
- What guarantees are required, and from which partners or directors?
- For a buy-in, what happens if the partnership ends?
Finance for your firm
If unbilled work, slow payers or a buy-in is stretching your firm’s cash, there are options that fit service businesses. To explore them, make one enquiry. There is no credit check when you first enquire, a real person reviews it and your details go to one lending partner rather than a crowd. Tell us your annual fees, typical debtor days and what the funds are for in your enquiry.
Frequently asked questions
How do professional firms fund work in progress?
Usually with a line of credit or overdraft sized to the typical gap between doing the work and collecting fees. Billing more frequently can reduce the need.
Can I finance a partner buy-in?
Yes, buy-ins are commonly funded with term loans, sometimes secured against the incoming partner's property. Lenders review the firm's financials and the partnership agreement.
Is invoice finance suitable for consultants?
It can be for firms invoicing business or government clients on terms, although some providers prefer goods-based invoices. Ask whether service invoices are accepted.
What security can a service business offer?
Often limited business assets, so lenders may rely on director guarantees, a general security agreement or property owned by the principals.
Can I finance an office fit-out?
Fit-outs can be financed with term loans or equipment finance. Align the term with your lease and check make-good obligations.
Sources and further reading
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