Forecasting cash flow from retainers & fixed-fee projects

Published Friday 19 September 2025

Table of contents

• Understanding cash flow patterns in service businesses
• Retainer cash flow management and predictability
• Fixed-fee revenue projection
• Tools and systems for cash flow monitoring
• Scenario planning and risk management
• FAQs on forecasting cash flow from retainers

Key takeaways

• Service businesses like law firms, agencies, and consultancies in Australia are moving towards fixed-fee and retainer payment models.
• Poor forecasting for retainer and fixed-fee projects can lead to cash flow gaps.
• Upfront invoicing and breaking projects into milestones can reduce the risk of delayed payments.
• Predicting possible scenarios and developing contingency plans can protect cash flow.
• Accounting software like Xero can help you manage revenue forecasting with ease.
• Cash flow projection software and project management tools can improve predictability.

Understanding cash flow patterns in service businesses

Service businesses, like law firms, consultancies, and agencies have constantly fluctuating workloads and payment schedules with retainers and fixed-fee projects, making it challenging to predict cash flow. While the income is predictable, the volatile nature of the work and other aspects outside of the organisation’s control, like delayed project payment collection and scope creep, can affect profitability and disrupt financial planning. However, when supported by clear project cash flow projections, fixed-fee and retainer billing can become some of the most lucrative systems for professional firms. According to BestLawyers, around 90% of Australian law firms now use fixed-fee pricing (via Lawyers Weekly).

To create stability and growth, successful service businesses rely on several revenue streams. Effective cash flow management helps you understand the amount of money the organisation needs to pay employees and keep operations running smoothly.

Retainers are an excellent way to maintain recurring income and serve as a baseline for cash flow planning. Comparatively, fixed-fee projects can provide a big revenue injection, but are not as consistent or as predictable.

It’s a delicate balance managing these two major streams of income without overextending resources, but one that can lead to optimised profits and growth. You can be proactive by creating stress test scenarios that account for situations like late payments and projects that run beyond the deadline. This can help you develop realistic financial forecasts and prepare for unplanned disruptions to cash flow.

Retainer cash flow management and predictability

The way you structure the agreement can make retainer cash flow management and predictability much easier. For example, be sure to set clear payment terms and invoice at the beginning of each period rather than the end. These simple measures reduce the risk of delayed payments. The agreement should clearly define the scope of work, and each retainer should align with staff capacity to prevent overcommitment and protect profitability.

Review your retainer structure regularly to ensure it’s profitable and reflects the client’s needs.

You can build this into the original agreement so the client is aware of upcoming reviews and can raise their own questions or concerns at that time. Present the reviews as transparent discussions to solidify trust and build long-term professional relationships.

Additionally, keep your retention rate in mind. Losing a major client can create a revenue gap, so staying aware of contract renewal dates and predicting contract closures avoids sudden profit loss. It also gives you ample time to find a new client or develop a replacement strategy. The business likely has a steady sales funnel of new prospects, and those potential new contracts are worth considering in cash flow projections as well.

Here’s a guide on what a sales funnel is and how it can grow your business.

Fixed-fee revenue projection

Unlike a retainer’s consistent payment schedule, fixed-fee projects generate spikes in revenue. While this model has many benefits, fixed-fee revenue projection can be one of the most difficult aspects of financial management for a professional firm. Even a small delay on a significant project can affect cash flow and distort revenue forecasts. Fortunately, there are some strategies you can implement to make realistic project cash flow projections.

For one, consider creating project milestones rather than invoicing for the entire project once it’s complete. This allows the business to cover expenses more quickly and reduces the risk of cash flow disruption if a payment is late. Strategic pipeline management is also important, from staggering project start and end dates to building reserves from profitable projects to carry the business through quieter periods.

Revenue from a major fixed-fee project or milestone paid in one month might mask underlying volatility and affect how healthy the company’s financials look on paper. It’s important for revenue forecasts to consider these irregular payments, identify gaps that may develop once the project is complete, and rely more on steady streams of income.

An effective fixed-fee revenue projection acknowledges that one strong quarter doesn’t always indicate sustainable cash flow, financial health, or long-term profitability. Smoothing the peaks and valleys of this unique revenue style can turn unpredictable inflows into sustainable forecasts.

Tools and systems for cash flow monitoring

Here are some essential tools and systems that can help service businesses monitor cash flow carefully:

Xero accounting software

Xero helps service firms by bringing accounting, invoicing, and cash flow forecasting together in one platform.

With the Analytics Plus AI tool, you can quickly see a short-term cash flow forecast (from 7 to 90 days). Xero sources data from your bank accounts, reconciled payments, and upcoming bills and invoices. It won’t automatically predict variable aspects like fixed-fee project revenue or inconsistent payroll, but you can add those manually for a more accurate cash flow projection.

Xero also offers helpful cash flow forecast templates to get you started. Plus, you can schedule invoices around project milestones and set up automatic reminders to reduce the risk of late payments.

Xero integrates with other forecasting tools that let you run stress test scenarios. These help you understand what the financial landscape would look like if something didn’t go to plan, like a client paying an invoice a month late or losing a major retainer.

Here’s a guide on how to send an invoice and what to do if a client doesn’t pay.

Purpose-built cash flow forecasting tools

Cash flow forecasting-specific tools can help you develop informed, realistic projections. A financial planning CFO or advisor can use these to prepare the organisation for unexpected downturns. Strong systems combine a powerful accounting platform like Xero with a specialist tool to track and update forecasts regularly and stay on track. Here are some options to consider that are compatible with Xero:

• Dryrun: This tool allows you to create different scenarios for cash flow forecasting fixed agreements to test “what if” situations and find solutions for hypothetical challenges. Professional firms can use these to see how changes to retainers and fixed-fee projects might affect liquidity and plan ahead.
• Float: Similar to Dryrun, Float lets you see how retainer income and project billing align with payroll and other recurring expenses.
• Fathom: You can use Fathom to combine cash flow forecasting with performance analysis for actionable financial insights. It also allows you to schedule regular automated reporting for consistent, up-to-date projections.
• Spotlight: A major feature is the visually-appealing reports you can create to convey cash flow forecasts in a simple, easy-to-read manner.

Project management software

Optimising project management software allows you to align timelines with billing schedules more easily and track fixed-fee project progress. Here are three examples of widely used project management tools you can implement.

• Trello: A simple, user-friendly tool for managing small projects that uses drag-and-drop cards to organise workflows. You can attach documents, assign roles, and set due dates, but it lacks built-in reporting and budgeting features.
• Monday.com: A comprehensive project management tool that’s suitable for extensive projects. It can generate reports, automate workflows, and integrate with other business tools and apps.
• Microsoft Project: A popular tool for companies that use the Microsoft Office suite. It’s useful for scheduling project tasks, setting timelines, and allocating resources.

Scenario planning and risk management

It’s important to align large expenses with incoming payments, especially for high-cost components like senior associate time, travel, and subcontractors. Scheduling invoices to match these outflows helps protect cash flow, and maintaining a cash reserve is a failsafe to carry the business through low-revenue periods.

External factors can still disrupt forecasts, so consider some scenarios that might impact your projections to develop effective strategies ahead of time. Here are some common scenarios to plan for:

• Delayed payments: This can quickly create cash shortfalls, especially if the missed payment is a large project milestone or a retainer invoice. This is where a cash reserve can be useful, but you can also mitigate the risk by making payment due dates clear and including a late fee or interest charge to discourage delays.
• Unexpected expenses: Unplanned expenses like new equipment or the need for a senior consultant’s time can arise without warning. It’s essential to factor these risks into your scenario planning to create realistic cash flow models.
• Scope creep: Costs can rise without additional revenue when project requirements creep beyond the original parameters. Preparing for this scenario means you can be proactive and renegotiate the terms of the project or reallocate resources as necessary.
• Client churn: Losing a client unexpectedly can lead to a significant loss of revenue. However, you can reduce this risk with scenario planning to develop realistic contingency plans. Dedicated client retainer management to maintain communication and trust is also essential.

FAQs on forecasting cash flow from retainers

Here are some frequently asked questions and their answers on forecasting cash flow from retainers and fixed-fee projects:

How can service firms improve cash flow forecasting for retainers?

Invoice at the start of each period, set clear payment terms, and review agreements regularly. This ensures predictable revenue and reduces the risk of late payments.

What’s the best way to manage cash flow from fixed-fee projects?

Use milestone billing instead of waiting until project completion. This smooths income, reduces disruption from late payments, and improves cash flow predictability.

Which tools help with retainer cash flow management and fixed-fee projections?

Tools like Xero, Float, Dryrun, Fathom, and Spotlight help track billing, forecast scenarios, and update projections in real time.

What risks should agencies plan for when forecasting project cash flow?

Key risks are delayed payments, scope creep, unexpected expenses, and client churn. Planning for these scenarios helps maintain stable cash flow.

Why is scenario planning important for cash flow forecasting?

It prepares businesses for disruptions like late invoices or lost clients. Scenario planning provides contingency strategies to protect profitability.