Sep 4, 2025
4 min read
They often say: is the juice worth the squeeze? With A/R collections, the answer is always yes — if you’re squeezing it right.
The metaphorical saying (and sometimes overly used corporate idiom) of “is the juice worth the squeeze?” applies perfectly to accounts receivable.
If collecting feels like too much effort for too little return, the problem likely isn’t the juice — it’s the process. Maybe you’re squeezing the wrong way: chasing invoices manually, invoicing late, or not setting clear terms up front.
With the right tools and discipline, every receivable becomes an orange that yields its full value. And the more consistently you squeeze, the more cash fills the glass — fueling growth and stability.
(Btw, I personally am quite proud of this analogy I came up with, but totally won't take offense if you are rolling your eyes and think it's a little corny 😄)
Ok let's focus. Cash flow is the lifeblood of every agency. Yet, one of the most common challenges business owners have is collecting accounts receivable (A/R) on time.
Revenue on paper doesn’t mean much if the cash hasn’t hit your bank account. Businesses can easily get caught in the “profitability trap” — celebrating a big retainer or project win, only to struggle with payroll a few weeks later because clients are slow to pay.
Let’s break down why A/R matters so much for service-based businesses, where things go wrong, and how to build a collection system that protects your cash flow.
Why A/R is Especially Critical for Service-Based Businesses
Service-based businesses operate differently than product or inventory-driven companies:
High payroll dependency – Payroll is often the largest expense (frequently 50–70% of total costs) and it’s inflexible. Your team must be paid on time, regardless of when clients decide to pay.
Time-based revenue delivery – Services are delivered continuously over time, but cash is collected later. That lag creates ongoing working capital pressure if collections slip.
Utilization vs. cash mismatch – A full team and strong utilization can still coincide with cash strain if invoicing or collections fall behind.
Client concentration risk – Many service businesses rely on a small number of key clients. One delayed payment can quickly ripple through payroll, hiring, and growth plans.
Healthy A/R management isn’t just bookkeeping. It’s cash protection, risk management, and growth enablement.
Where Service-Based Businesses Often Go Wrong with A/R
Loose contracts and unclear payment terms – In an effort to close deals or “be flexible,” businesses accept vague or overly generous payment terms. Net-60 (or worse) may feel harmless, but it effectively turns you into a lender.
Delayed or inconsistent invoicing – When invoices aren’t sent immediately after a billing period ends, you’re extending credit unintentionally and training clients to pay late.
No clear ownership of collections – Collections often fall to the founder, relationship managers, or “whoever notices first.” That makes A/R emotional and inconsistent instead of process-driven.
Lack of visibility into metrics – Without tracking DSO and A/R aging, leadership often doesn’t realize there’s a problem until cash is already tight.
Building a Fortified A/R Process
Here’s the CFO-approved framework I recommend agencies implement:
Tighten Your Contracts
Require upfront payments or deposits for projects.
Standardize Net-30 terms (Net-15 where possible).
Clearly define billing frequency for retainers or ongoing services.
Include late payment language to establish expectations.
For recurring services, strongly consider mandatory ACH auto-pay on a fixed date.
Invoice Immediately and Accurately
Invoice as soon as the billing period ends or services are delivered.
Automate invoicing through your accounting system where possible.
Make invoices crystal clear: services covered, dates, payment terms, and instructions.
Assign a Collections Owner
Finance owns collections — not client-facing team members.
Hold a weekly A/R review meeting.
Assign clear follow-ups with dates and escalation paths.
Segment and Prioritize A/R
Use an A/R aging report (0–30, 31–60, 61–90, 90+).
Escalate 61–90+ day balances to leadership.
Establish and enforce stop-work policies for severely overdue accounts.
Communicate Proactively
Send friendly reminders a few days before invoices are due.
If payment is late, have a tiered approach:
Day 1 late: Automated reminder.
Day 15 late: Personal email.
Day 30 late: Phone call from finance lead.
Day 45 late: Escalation to CEO + pause work.
Tie A/R into Cash Forecasting
Roll A/R data into your 13-week cash flow forecast.
This helps you anticipate shortfalls before they happen and adjust spending accordingly.
KPIs Service-Based Business Should Track
DSO (Days Sales Outstanding) – Target: under 45 days
% Current A/R – Portion of receivables in the 0–30 day bucket. Target: 70%+
Collections Efficiency Index (CEI) – Target: 90%+
Client concentration in A/R – No single client should represent more than ~30% of receivables
Final Thoughts
Strong A/R management does far more than improve cash flow:
It increases business value (buyers and lenders scrutinize receivables quality).
It improves financing options and banking relationships.
It strengthens client relationships by setting clear, professional expectations.
At the end of the day, revenue doesn’t fund payroll — cash does.
If you want to grow a service-based business sustainably, you need a disciplined, repeatable system for collecting what you’ve already earned.
A/R isn’t back-office busywork. It’s a strategic lever for cash flow, stability, and long-term value.
As always, I’m happy to provide additional perspective or help tailor this to your specific business model.
