Cash and working capital: the three levers

Why cash is a small chapter with a large effect

Working capital in a services firm has two ugly components: work in progress that has been done but not billed, and receivables that have been billed but not collected. Both exist because the unit of work is the hour and the hour has to be recorded, reviewed, written down, invoiced and chased. Unit-based delivery and subscription pricing remove most of the first and change the shape of the second. The three levers here are short because the mechanisms are simple; the cash effect in the model is not small, and a sponsor funding the foundation (P8) out of operating cash will want it early.

C1. WIP and unbilled reduction

What it is. Work billed as it is delivered, by unit, rather than accumulated as hours and invoiced at month-end after a partner has reviewed and written some of it off. The platform knows when a unit is complete (it passed D3), so billing is an event rather than a reconciliation.

Line it moves. Working capital; also realization, because the write-down between recorded and billed hours disappears when hours are not the unit.

Typical range and evidence. The firm's own ledger: WIP days and the write-down rate at close. No external benchmark is more useful than the firm's own. Grade: firm's own data.

How to run it. Measure WIP days and write-down at close. Move unit-based billing live with D1, unit type by unit type. For fixed-fee engagements not yet on the platform, bill on milestones defined at P9 rather than at completion.

Kill criteria. WIP days not down by half at year one for converted unit types.

Metrics. Close: WIP days; write-down rate. Year one and three: WIP days; unbilled as a share of revenue.

Horizon and stage. Deploy; day 100 to year one.

C2. Collections and DSO

What it is. Automated invoicing, reminders and dunning, carried from the software edition with its benchmark evidence on days sales outstanding and close.¹ The services-specific fact is that a services firm's receivables are personal: the partner who did the work is embarrassed to chase, so nobody does. Automation removes the embarrassment.

Line it moves. Working capital; bad debt.

Grade. Strong (benchmark), carried.

How to run it. Automate the reminder cycle at day 100. Route exceptions to finance, not to the partner. Offer card and direct-debit payment with subscription pricing (C3).

Metrics. Year one: DSO against close; bad-debt write-offs. Year three: DSO.

Horizon and stage. Deploy; day 100 to year one.

C3. Subscription billed in advance

What it is. The cash consequence of R1 and R8. A subscription billed annually or quarterly in advance converts a receivable into deferred revenue, which is cash in the bank before the work is done. For a firm that has always financed its own WIP, this is the single largest working-capital change in the conversion and it funds part of the foundation.

Line it moves. Working capital (deferred revenue replaces receivables and WIP).

Typical range and evidence. Sector direction only: among small accounting firms, roughly a third collect a deposit upfront and 13 percent collect the full fee upfront for tax preparation, per a 2025 vendor benchmark, which says the practice is accepted and far from universal.² The firm's own conversion sets the number. Grade: Medium (direction) / firm's own data.

How to run it. Default to annual in advance for the base tier with a small discount, quarterly for standard, and let the premium tier (R11) negotiate. Do not discount more than the firm's cost of capital justifies; the point is timing, not price.

Metrics. Year one: deferred revenue as a share of recurring revenue; cash conversion cycle. Year three: the same.

Horizon and stage. Convert; years one to two.