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Bank or MSP?

MSPs play a crucial role in protecting small and medium businesses from cyber threats, which comes with a host of challenges. However, many MSPs also find themselves unintentionally taking on the additional responsibility of providing credit to their clients. When clients fail to pay their invoices on time and receivables start to pile up, MSPs begin to resemble banks more than IT service businesses.

Why you shouldn't be a bank to your clients

One of the recurring challenges faced by MSPs is ensuring that their clients pay on time. Unlike banks, MSPs are not in the business of providing credit. This might seem obvious but when clients consistently pay late, large outstanding AR balances begin to look like lines of credit provided by an MSP at no additional cost. This results in significant cash flow issues.

Why understanding what your days sales outstanding is important

One of the most important ways of ensuring that your MSP is not becoming a bank is by understanding what your days sales outstanding (DSO) metrics are. DSO is a vital metric that helps MSPs measure the average number of days it takes for their clients to pay their invoices. Together with an AR aging report, DSO gives an MSP insights into their cash flow. By monitoring and managing DSO effectively, MSPs can take proactive steps to reduce their DSO and improve their cash flow.

Improving Days Sales Outstanding and Cash Flow with FlexPoint

Understanding the importance of DSO is only half of the equation for MSPs. Utilizing the data and taking proactive steps to reduce their DSO is just as important. One of the best ways of reducing DSO and improving cash flow is by adopting a payments software solution. FlexPoint is a payments platform for MSPs that helps reduce DSO by utilizing:

1. Automated Invoicing and Payment Reminders: FlexPoint streamlines the invoicing process by automating invoicing and automating the collections process through customizable payment reminder emails.

2. A Client Portal: FlexPoint provides a client portal where your clients can login and view historical and upcoming invoices. This removes questions around “did you send that invoice” or if an invoice was actually paid.

3. Multiple Payment Options: FlexPoint enables MSPs to provide their clients with multiple payment options including ACH, credit cards and short-term financing. By providing clients with multiple payment options, FlexPoint increases the speed of payment and reduces DSO.

4. Autopay: FlexPoint makes it easy to put clients on autopay. Autopay ensures invoices are paid on the due date reducing DSO to almost zero.

Conclusion

Running an MSP should not mean assuming the role of a bank. However, delayed payments and accounts receivable aging can turn MSPs into de facto lenders, affecting their cash flow and hindering their ability to focus on their core IT management responsibilities. Understanding and actively managing DSO is essential for MSPs to improve their financial health.

By leveraging tools like FlexPoint, MSPs can automate invoicing, implement clear payment terms, remove credit risk, and gain accurate insights into their cash flow. With improved financial management, MSPs can redirect their energy towards delivering exceptional IT services and driving business growth. Don’t be a bank. Reach out to learn more how FlexPoint can help.