No business can overlook the time continuum. While managed services may seem to have little in common with Marty McFly and Doc Brown, it’s important for MSP owners and leaders to recognize that even minor industry changes can significantly sway future outcomes. That’s why business leaders must periodically assess, streamline and improve critical parts of their operations. Complacency is the enemy of efficiency.
Collections is the perfect example. The technology investments and process improvements used just a few years ago to optimize an MSP’s accounts receivable practice are likely due for a significant refresh. Accounting and payment platforms constantly change, as do the billing and collections best practices within the IT community. For these reasons, providers should be periodically assessing, upgrading and automating as many of those procedures as possible.
In this case, time is money. Failing to persistently refine collections processes can significantly impact an MSP’s payroll, cash flow, profitability and overall stability.
The good news for IT services business owners is they don’t have to recreate the wheel to realize the benefits of A/R optimization. A plethora of channel best practices are available to hone every part of the collections process, and industry-specific tools can alleviate critical pain points with key integrations and automations. MSPs have access to tremendous resources today and can readily adapt and heighten their A/R management capabilities with minimal investment today.
What could go wrong?
Few business owners purposely avoid making upgrades to their operations. Most simply get too busy or distracted to regularly pause and assess current or potential issues, and very few incorporate improved practices into a quarterly or annual plan. Creating and sticking to constructive new business routines can be difficult, especially for rapidly growing MSPs with increasingly higher client demands, support services and operational complexities.
Expansion further taxes owners’ time and other critical resources. Improvement project deadlines tend to slip, and previous pain points might not appear as urgent as the organization’s newer and potentially larger concerns.
That’s a danger every MSP must avoid when scaling the business. New and larger sales opportunities and increasing support needs can disrupt critical plans and operations, and those rising demands can quickly outpace available company resources. That situation often forces owners and employees to deviate from critical plans and responsibilities and focus more time and attention on the latest priorities. Putting out fires detracts from operational excellence.
Collections is one of those key areas that MSPs tend to overlook when everything seems rosy. With sales booming and everyone busy managing systems and implementing new solutions, it’s all too easy to let payment dates slide. Only when expenses begin exceeding cash flow do some owners begin to tighten the reins on overdue invoices. Unfortunately, that point can come too late for MSPs that overextend their credit lines, and attempting to reinstitute previously ignored policies creates similar headaches.
Taking a more proactive and ongoing approach helps IT services providers minimize those financial difficulties and build a robust and self-sustaining collections process.
Recognize common A/R pain points
The first step in correcting and strengthening an MSP’s collections policies, practices is identifying the weak points. What signs point to trouble ahead (or already underway)?
Here are six signs it could be time to update your MSP’s collections process:
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1. Rising A/R balances. MSPs should continually monitor the financial metrics of their business to identify potential trouble points. Outstanding debt trending upward should catch an owner’s attention like a flashing neon sign. Billing and collections teams must work hand-in-hand to ensure the fastest possible payment turnaround for all monthly services and keep this number as low as possible. Increasing sales can mask that A/R imbalance, so MSPs need to diligently watch the percentage of outstanding debt and “aging dates” for past due accounts. If the number of invoices past the 30-day mark is growing along with the unpaid balances, it’s a sure sign that collections processes and policies need an update.
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2. Declining margins. Poor or declining cash flow has an immediate impact on an MSP’s profitability. Fortunately, this can be one of the least disruptive financial problems to fix today. The resources required to ensure providers get paid on time for services and goods they deliver can often be used to support other areas of the business. For example, when smaller IT firms get behind on billing and collections, they may assign account managers, sales team members and even technical staff to assist with calls and messages. Upgrading A/R strategies and systems can return those team members to their rightful positions, improve productivity and elevate margins.
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3. Miscommunications and lack of transparency. Clients often need clarification on IT-related policies and procedures, and payment requirements is one of those topics that demands a refresher course from time to time. Habitually overdue invoices could be one of the warning signs of those poor communications or user confusion. MSPs need an effective way to relay key information initially and then periodically on collections with those responsible for paying bills. Providing clients with easy access to their payment histories and current and past invoices is a sure way to avoid misunderstandings and speed up the process.
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4. Excessive write-offs and errors. The higher the outstanding debt, the more difficult it is for an MSP to collect, especially over time. Business owners may attempt a variety of tactics to get paid for past-due invoices, from sending reminders and slowing support to eventually severing the relationship, but the best method of success is prevention. While it may not be easy to predict clients’ cash struggles or other issues that keep them from paying on time (i.e., health concerns, fires, natural disasters), MSPs can minimize if not avoid write offs with autopay and tighter collections processes.
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5. Client complaints. Customers are typically quick to point out payment-related issues. Lost invoices, duplicate bills, payment misapplications and other mistakes can be very frustrating to not only clients and their accounts payable teams, but to MSP employees who have to resolve those problems. Providers should address these grievances from both groups quickly to improve collections and cash flow.
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6. Poor internal coordination. Legacy systems and data silos slow, disrupt or otherwise challenge an MSP’s collections processes. If A/R team members’ stress levels seem to be rising exponentially in relation to business growth, providers should re-evaluate their payment methodologies and consider implementing new automation and integration options. Strengthening departmental efficiencies will ease anxiety while driving cash flow and profitability.
Update Collections in One Fell Swoop
An automated and flexible billing and collections tool with MSP-centric integrations like ConnectBooster can revitalize and enhance the accounts receivables process. The complexities involved in a modern managed services business demand a more robust support system. ConnectBooster makes that a reality, eliminating manual processes and silos of information to speed billing and payments for providers and their clients.
Without the speed and automation of a modern-day system, monthly recurring revenue may simply remain unrealized cash flow. The only true way for MSPs to convert sales to cash is with a fast, intuitive and secure payment platform that seamlessly connects with their PSA, accounting and quoting solutions.
ConnectBooster provides IT services firms with those capabilities. Learn how this platform helps MSPs resolve some of their largest financial and operational challenges by booking a free demo.
