Why do so many managed services providers undervalue their services and let their work go unpaid?
In an industry where hard work, expensive equipment, and a high skill set is a requirement, most IT service providers do not give themselves enough credit. Their labor often goes unrewarded thanks to their chronic late paying clients.
One of the biggest reasons is IT providers do not treat their business as a utility and tend to let payments slide. If someone doesn’t pay their internet bill, services get shut off, but MSPs frequently go ninety days or more, waiting for a client to pay for the thousands of dollars owed for equipment and support.
Providers offer high-impact services with the associated costs. That may be people, software, hardware, rent, or other expenses – just like any other business.
The truth is managed service providers should consistently receive money in a timely fashion for the services they provide. That expectation has been set in other industries that are just as business-critical, so why shouldn’t channel partners fall in line?
They can, and should. The first step is changing the way your business sets expectations in the sales process. Getting the payment conversation out of the way up front will improve the process and ensure IT companies have a much more reliable cash flow.
Build the infrastructure for fast payments
Often, a lack of structure in an MSP’s sales process leads to problems later in the partner relationship.
In general, providers do an excellent job explaining what their clients should expect from them. They develop, and layout fantastic SLAs and discuss all the finer points and processes associated with their IT services. However, they usually fail to set their expectations on payments and due dates.
It’s relatively easy to roll into the pricing conversation and discuss timelines, and whether billing will occur via ACH or using a credit card on file. That discussion needs to happen upfront; before any time or money is invested in a new client. An ACH authorization form should be presented along with the master services agreement.
This small change could have a significant impact on a managed services providers. It simply makes more sense to have the money talk before investing $10,000 into a client already sixty days in arrears on its support and hardware contracts.
If your company delivers great products and services, people trust your business, they will agree to your payment requirements. If they won’t, your sales team probably has not done a good job convincing them that your business is trustworthy.
There is no reason an MSP should not establish its payment expectations upfront in the sales process before the relationship has a chance to go south.
No processes? There will be consequences
In addition to souring the relationship, when the sales team fails to set payment expectation, MSPs often experience growth problems.
A lack of liquid assets or an unbroken line of credit will prevent you from hiring and retaining talent. When an MSP is financially unsound, it also tends to crush morale and lead employees to seek work elsewhere.
It’s tough to keep top talent, let alone recruit new workers. Turnover is a horrendous waste of time, money and other valuable business resources.
MSPs who continue to build recurring revenue and leverage automated payment systems reduce a lot of those pain points. They may not lose as many clients overbilling concerns and keep their staff in place, thanks to a more stable cash flow.
Once an IT provider has a process in place to set proper expectations and execute automatic payments, a lot of their pain goes away. Inconsistent cash flow is a thing of the past and growth ensues.
If you find yourself struggling to try to transform your MSP’s finances, please give us a call or contact us.