Tired of the constant hassle of chasing clients for payments? If you’ve ever found yourself frustrated by the dance of follow-ups and overdue invoices, you’re not alone. Imagine a world where income flows in consistently without delays or additional expenses. In this reality, your finances thrive, bills are paid and you have the resources to invest in growth — tools, programs and the people who propel your success. It’s time to bid farewell to the payment chase and step into the realm of unencumbered prosperity.
The bottom line? Consistent cash flow fuels your healthy, organic growth.
But How Do You Turn Earned Revenue Into Actual Cash Flow?
The age-old problem for IT firms (or any business) is identifying and adopting the most cost-effective processes for turning earned income streams into actual bank deposits. Your company’s cash flow depends entirely on receiving payments for your services. Therefore, the faster the turnaround time for receiving payments, the stronger your organization’s financial situation will be — that’s Business 101.
No matter how much business an MSP may get, its success is often hampered by challenges in the collections process. Many clients either delay or withhold payments, and sometimes checks go missing in transit. These payment hang-ups happen more often than some MSPs are willing to admit, and it takes a real toll on both your MSP’s finances and the emotional well-being of everyone in your company. When money is tight, everyone feels it — your service technicians, salespeople, accounting team and, of course, the CEO. The stress of not knowing whether checks can be paid at the end of the month creates a culture of pressure and anxiety, which detracts from your MSP’s ability to deliver consistent results.
Even the most successful MSPs can run into cash flow issues. Sourcing the staff and tools to support an influx of new clients is expensive and can be a real issue if your A/R is out of hand. Additionally, if your company expands without a strong cash flow, you may need to rely on lines of credit and bank loans to meet payroll obligations and pay expenses.
No business owner wants to get into the practice of delaying payments to contractors, utilities, landlords and others simply because of problems with their debt-collection methods. Strengthening collections policies and procedures will put more cash in your bank accounts for paying those bills and boosting and expanding operations.
How To Build Up Your Cash Flow
An effective accounts receivable plan should be simple and easy to communicate with employees and customers. Here are six tips to take charge of your cash flow and end late client payments for good:
1. Develop Strict Collections Policies And Keep Promises Every Step Of The Way
Think of collections policies as your MSP’s unwavering handshake — a commitment made to ensure that the wheels of your business keep turning smoothly. These rules must be clearly written into all managed services contracts and be accessible to your employees and clients. Strict adherence to these policies is critical for ensuring balances, late fees and assessments are always paid on time. Also, review your policies in detail with prospective clients before closing any sales and during the onboarding process. This allows you to address any misconceptions and clarify expectations.
Your collections policies are more than just words on paper. They’re a testament to your commitment to your business and your clients. Do what you say and say what you do so that your policies stand as a living testament to your dedication.
2. Focus On Continual Improvement
Just as the old saying “You can’t make a silk purse out of a sow’s ear” says, it’s clear that without the necessary resources, achieving financial success becomes an uphill battle. Designating someone to handle bill generation, A/R monitoring and persistent follow-ups on overdue payments is a step in the right direction. But in order to ensure financial success, you need to provide your collections team with enough time, resources and opportunities to refine policies and procedures and get the job done.
3. Collections Are A Responsibility, Not A Punishment
As an essential part of the financial engine, you should have a dedicated person with accounting and collections skills in place. If that person does not have these skills, you should provide them with the right support and training. Insider tip: Those with a financial stake in the business will be more willing to follow through with collections calls and enforce the stipulations in each client contract.
4. Create And Regularly Review A/R Aging Reports And Note “Fashionably Late” Payers
Ah, the ever-fashionable “late payers.” You know them well — those clients who seem to have a knack for making tardy appearances when it’s time to settle their bills. Tracking which clients appear most frequently at the top of your A/R list is essential. That periodic review helps you identify and monitor harmful financial trends and implement penalties to change those behaviors. Those who rank high on the aging report should be first in line for “autopay” to avoid the need for tough discussions in the future.
5. Implement Payment Automation
Getting each client to pay on time each billing period can be a chore without the right policies, management and systems, but automation can simplify this process. MSPs have the tools at their disposal, including a Professional Services Automation platform and accounting packages, which create a seamless (and essentially hands-free) invoice-to-payment collections system when connected to a secure payment portal. A secure payment portal is a win-win for both you and your clients. It offers streamlined transactions, improved data protection and seamless credit card and ACH payment processing. Additionally, it enables clients to conveniently access their payment and transaction history securely in one place, providing greater clarity into where their money is going and adding an air of trust and credibility to your MSP.
6. Uphold Payment Incentives Or Penalties
Most business owners respond more favorably to inducements than fees and late charges. That’s why many MSPs offer discounts for signing up for autopay. For example, a 10% discount for six months can ease the transition for reluctant clients. Alternatively, instead of taking on a 10% price increase for contract renewals, you could drop that to 5% (or less) if the company opts into autopay.
Taming A/R Isn’t Rocket Science
Getting paid on time is not an unreasonable expectation, nor should it be a difficult hurdle for you to overcome. With the right tools and a forward-focused attitude, you can boost your financial freedom, strengthening your cash flow to pay the bills and fund organic growth.
