Few business owners enjoy collecting payment from their customers. In your next peer group meeting or at lunch during the next industry event, bring up the topic.
Nerves, productivity, and profits are typically the first to go.
But it’s a necessary part of business.
A healthy cash flow is equity to MSPs today. That steady flow of income ensures the company can meet its financial obligations to employees and suppliers, and fund new client acquisition activities and service expansion. Without an effective AR process in place, business plans tend to fall apart rather quickly.
You can’t serve two masters
That is the point where many MSPs struggle. Billing and collections is a chore they dutifully complete each month, hoping that their clients pay up quickly with little hassle. When they don’t the process may drag out for weeks or months as they track down delinquent payments.
MSPs using that “defensive” strategy often find themselves with cash flow problems. Even though their clients may love them and truly value and appreciate the support they provide, the lack of structure and urgency in their collections process tends to slow down payments.
And when enough customers start taking a few days extra to settle the tab during a time of growth, with a resulting increase in accounts payable, MSPs may find themselves borrowing or asking for credit extensions to keep themselves in the black.
That situation is relatively rare for those with more proactive AR processes and policies. They establish tighter controls on billing and collections to ensure they get paid on time for the quality services they deliver.
Every services contract includes language that supports those policies, with NET terms, firm deadlines, payment options, penalties, and easy to follow instructions. There should be little if any wiggle room in that standard.
Long-term financial stability requires that today’s MSPs hold fast to that ideal.
Track the following to stay on top of your financials
Proactive IT services providers also understand and monitor financial KPIs (Key performance Indicators) to ensure their team and their clients are adhering to those established standards. Measures such as:
- Cash flow: a critical measurement for MSPs, it quantifies liquidity — the firm’s ability to collect accounts receivable and meet its financial obligations.
- Accounts Receivables (AR): do know how much clients currently owe? Successful MSPs watch this number closely, tracking the outstanding invoices by client and age of the debt. It also helps them set realistic goals based on contract stipulations, payment options, and customer type.
- Time quantified: how much time does the team spend performing AR-related processes? When the organization is looking to improve operational efficiency, this is typically costly expense can be trimmed considerably with an investment in payment automation.
- Days Sales Outstanding (DSO) is a frequently misinterpreted measurement of A/R performance which calculates the speed of collection after sales completion — the lower, the better.
- Accounts Receivable Turnover Ratio (ART) shows how well the company is leveraging its assets. A higher figure means the company is quicker at converting accounts receivables into cash. Improvements here can significantly boost the organization’s ability to fund its growth and ensure its long-term financial situation.
The good news for MSPs is they don’t have to spend considerable time making these types of calculations.
No need to get an accounting degree. Automated platforms like ConnectBooster let them concentrate on core operations, delivering quality service to business customers, while the back-office solutions take care of the financial side of the house.
Sure, they still need to pay attention to the big picture trends and make adjustments that improve performance levels in critical areas. But their billing and collections processes are simplified, and user-friendly dashboards make it easy to track KPIs and monitor cash flow. In fact, they let management teams know where they stand financially — at any point of the day.
So, keep your day job and let automation handle the heavy lifting for AR. It can be a cost-effective win for everyone.