Aging A/R is a Growing Problem for MSP Businesses

Accountants can be managed services businesses owners’ best friends. Understanding how to track and control cash flow and optimize the collections process are crucial assets in organizations that depend on continual growth. MSPs rely on their own financial reserves to expand sales and marketing efforts and increase their services capabilities.  

Self-funding is a critical objective for any business. The less need for financing, the lower the risk. With interest rates on the rise and the uncertainties around lines of credit, the only sure bet when expanding an MSP organization is having the cash on hand to pay for those activities. Whether hiring technicians, leasing new facilities, or contracting with marketing firms to drive lead generation, no owner wants to add unnecessary expenses to their company’s bottom line.

Aging accounts receivable (A/R) have the same effect. The longer clients delay payments, the less money MSPs have available to implement expansion plans—one side essentially gets an interest free loan at the other’s expense. It’s important for business leaders to understand that concept when developing or refining collections policies. A poor strategy can slow payments and rapidly inflate the company’s A/R balance.

Just the Facts

Accounts receivable is one of the easiest metrics for an MSP (or any business owner for that matter) to understand. How much do your clients owe your firm? More specifically, A/R is the balance due for goods and services delivered or that have been used but not yet paid for by customers. The key point is accounts receivable are on the asset part of a business’ balance sheet since those outstanding balances can be readily converted into cash.

The problem with that assumption is that nearly every company fails to collect from some customers or ends up at some point selling their outstanding debt to collections agencies for pennies on the dollar. MSPs are no different. Managing aging A/R is a struggle across every industry, but for those that send out a variety of invoices monthly, including those for just completed projects as well as services, it’s easy to lose track of the process. Payment dates tend to slip by quickly without a good system for managing all the chaos.

Many MSPs don’t have an effective way to quickly convert invoices into bank deposits. As a firm’s aging accounts receivable balance rises, it weakens (or even loses) its ability to pay employees, suppliers, and other expenses without dipping into reserves or borrowing other peoples’ money. That’s why successful managed services businesses implement collections best practices and automate as many of those processes as possible.

Leverage Technology

Integrating customer relationship management (CRM) or professionals services automation (PSA), accounting and quoting tools with a secure payment portal (i.e., ConnectBooster) allows MSPs to increase their overall billing efficiency and cash flow. When properly connected and managed, these systems optimize the experience for providers and their clients, sending out invoices and collecting payments on schedule.

Whether billing at the end of each month or upon completion of projects or delivery of new products and services, MSPs can count on the technology to take care of mundane tasks that most employees would rather not tackle.

Automated collections reduces anxiety across the board. Clients receive invoices in a timely fashion, have an option (with ConnectBooster) to double-check previous statements themselves thanks to a 24/7 accessible payment portal, and can set up autopay to prevent late charges. MSPs benefit from all the same features. The best result of all is the ability to minimize if not eliminate aging A/R. With strong collections policies layered into these automated systems, providers can quickly and effectively reduce payment lag time and boost their cash flow.

The Bottom Line

A robust collections program gives MSPs greater control of their financial futures. That means less reliance on banks and credit agencies to fund business expansion—along with less interest expenses and fees.

Having cash on-hand also provides greater flexibility, opening credit lines for firms to pay for unplanned and high potential projects. MSPs with aging A/R issues may not be able to take advantage of opportunities such as onboarding a major new client and properly building out their solutions stacks. Without adequate cash flow, providers may be forced into taking out loans and incurring higher financing costs to adequately fund those types of business growth activities.   Getting paid on time eliminates many of those headaches. MSPs that can quickly collect their monthly recurring revenue and project-based income MRR can readily reinvest in their businesses. Those with aging A/R lose out on all those benefits and may throw away thousands of dollars in interest every year.

The best way for MSPs to minimize or eliminate aging A/R and optimize cash flow is by automating collections. With ConnectBooster, your MSP can bill and collect the exact invoice amount generated by your CRM or PSA to dramatically minimize your aging A/R and enhance cash flow. Contact us for a demo to see how ConnectBooster can transform your billing and collections procedures.


MSPS Guide to Predictable Cash Flow in Uncertain Times

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