Accounts receivable balances are a significant problem for many managed service providers. Are you struggling to get paid by your clients? How often do you end up sending follow up emails to remind customers about settling their past due monthly bills?
Collections can be frustrating. All too often, MSPs end up acting like their customers’ bank?
Wouldn’t you rather focus on your normal business tasks? Clients hire your company to provide managed services, deliver break-fix services and support, and keep their IT systems operational, not to continually spend time sending out past due notices.
MSPs are not lending institutions. You should get paid in a timely fashion for the services, support, and any products you deliver.
How past due payments affect your MSP
When you have payments to be processed that are outside of the 30-day or even 60-day window, it means that money is not in your pocket. Better yet, it hasn’t been deposited in your company’s bank account collecting interest or to use for acquiring new clients or projects.
That is the definition of rolling accounts receivable (or rolling A/R), which essentially means people owe your MSP business money. The caveat is your team is wasting valuable time trying to collect payment for what clients owe, likely based on a contractual obligation they agreed to in exchange for the quality services your firm delivers every month.
Their slow payments make it harder to support their business (and grow yours). Not having access to that money handcuffs your company in several ways, including:
- Struggling to pay your bills
- Failing to meet payroll obligations
- Borrowing against a business line-of-credit instead of using incoming revenue
- Delays in business growth and hiring decisions because the money to expansion is not available
- The longer clients can put off paying, the more your credibility as a trusted advisor suffers (in their eyes as well as others)
No matter how you look at it, when your company is forced to send out past due notifications and fails to implement a reliable payment processing system, your managed service business is already feeling the pain. It’s time to reevaluate your collections processes and tools.
How to make sure your MSP gets paid on time
Here are a few tips for improving your firm’s collections process so you can avoid sending out those past due “payments of doom.”
- Sales should set the expectation up front. The MSP sales team, whether it be owners, partners, client relationship managers, or account executives, must lay out the payment requirements early in the discussions. In addition to talking about the number of end users you will be expected to support, you need to establish payment dates and set clear penalties for non-payment. If the terms are NET 15, they must adhere to the appropriate payment deadline or face additional fees. ConnectBooster can completely automate the process once they sign a contract, basically eliminating further discussions around terms and other payment concerns. Learn more here.
- Reminder payment processing notifications. If a client is notoriously late with payments, you should consider sending out reminder email payment notifications before sending out bills. Our payment portal allows businesses to send out custom emails automatically based on your specific time-frame, but other email marketing/communications tools like MailChimp can help. Incorporate billing dates and payment terms reminders in your company newsletters or other communications. Those types of gentle prompts often inspire clients to take action (such as paying their bills earlier).
- Phone calls are effective. Yes, verbal communication is a manual process. Unfortunately, some of your late-paying managed services clients will need a reminder unless your firm uses an automated payment system. A quick phone call lets your team touch base and prompt stragglers to send their check or credit card details ASAP.