Streamlining MSP Payment Cycles: A Guide to Quicker Client Payments

Atradius's 2023 Payment Practices Barometer survey reports that 55% of all B2B invoiced sales in the United States are overdue. It also found that the sector most affected is electronics/ICT, which is why the impact of late payments is familiar to most MSPs. 

Late payments reduce an MSP’s cash flow, making it difficult to pay staff, cover bills, and continue regular business operations. 

A study from QuickBooks also found that 89% of mid-sized businesses report that late payments hinder a company’s growth.

Fortunately, there are practical ways to streamline MSP payment cycles. 

This guide to quicker client payments covers payment cycle challenges and solutions, actionable strategies for improving them, and how a streamlined payment cycle impacts business performance. 

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Understanding the MSP Payment Cycle

The payment cycle is a fundamental component of Managed Service Provider (MSP) business functions. It encompasses the steps beginning with service delivery up to receiving payment. 

‍For an MSP, the payment cycle consists of: 

1. Providing MSP services to clients
2. Invoicing the client for those services
3. Collecting payment from the client
4. Reconciling the account 

This article will show that inefficient steps can significantly impact cash flow and an MSP's overall financial health.

Importance of a Well-Managed MSP Payment Cycle

Healthy business finances and consistent cash flow depend on a smooth payment cycle and the ability to offer MSP services without interruption. 

‍A well-managed payment cycle is beneficial for several reasons:

• Cash Flow Stability: Punctual and predictable payments help MSPs pay vendors and staff and also fund company growth.

• Efficient Payment Processes: Reduce administrative burdens to improve operational efficiency, allowing MSPs to focus on core activities and client service delivery.

• Client Satisfaction: Clear and consistent billing practices help earn clients’ trust and satisfaction, which can foster long-term relationships and client retention.

3 Common Payment Cycle Issues Faced by MSPs

Unfortunately, there are also challenges MSPs face that hinder smooth payment cycles.

These include slow payment processing, inconsistent billing intervals, and relying on manual invoicing.

1. Slow Payment Processing

A QuickBooks study found that 65% of businesses report spending an average of 14 hours per week completing administrative tasks related to collecting payments.

The longer it takes to process payments, the longer it takes for an MSP to have those funds available to allocate towards their operating expenses or investments.

2. Inconsistent Billing Intervals

Irregular or infrequent billing intervals confuse clients and disrupt cash flow stability. Uneven revenue streams make financial planning and budgeting difficult for MSPs. 

Suppose you invoice a client on the 5th of January for the previous month’s services.

In February, you invoice them on the 1st of the month. 

Inconsistent payment intervals like these make it difficult for clients to track when they need to pay. 

A few days might seem like a minor detail, but if a client doesn’t expect to receive an invoice that day or at that time and it turns up unexpectedly, they might not have the funds to pay. 

Conversely, if an MSP always sends an invoice on the same day, it becomes much easier for clients to plan ahead. They know when they need to pay and how much, and they can set aside the appropriate funds. 

3. Manual Processes

Relying on manual processing to follow up on late payments will make the process much more time-consuming and prone to errors. 

Invoices could be lost or misplaced, leading to payment delays.

A PYMNTS and American Express report found that businesses that rely on manual processes take 30% longer to follow up on overdue payments than those using automated methods.

The Importance of Improving and Optimizing the Client Payment Cycle: 10 Benefits

Now that we have covered the challenges MSPs face with payment cycles, we will discuss why improving and optimizing the client payment cycle is so important. 

MSPs benefit from optimized payment cycles in several ways, from reduced administrative burden to improved client relationships. 

These benefits are particularly significant in an increasingly competitive industry.

1. Ensures Steady Cash Flow: 

Cash flow problems are common in B2B businesses, and MSPs are no exception. 

A 2023 report from Balance found that nearly 68% of companies that receive more than half of their payments later suffer from cash flow problems.

Further, 27.5% of companies that receive late payments pay their suppliers late, too.

Steady and predictable cash flows are essential to meet payment obligations, including those of your suppliers.

With predictable cash flow, you will know you can cover your operational costs and capital expenditures.

2. Improves Client Relationships: 

Transparency and reliability from faster and more efficient payments build trust in client relationships. 

Building trust pays off in many ways, including profits.

In a 2024 PwC report, 93% of business executives agree that creating and maintaining trust improves the bottom line.

‍Your clients will appreciate your clarity and reliability, which can transform the client relationship into a long-term, mutually beneficial one. ‍

3. Bolsters Client Retention and Satisfaction: 

According to a PYMNTS.com study, 51% of respondents appreciate a streamlined payment process enough that they would be willing to pay more to use such a system.

Faster payments mean fewer billing problems and disputes, improving client satisfaction and leading to better retention. A 5% increase in client retention can increase profit by 25%. 

4. Decreases Administrative Burden: 

An Entrepreneur survey found that 40% of employees report losing at least an hour daily on administrative tasks that do not drive value for their organization.

‍Less time and money spent on billing and collections frees staff to engage in more productive activities, helping lower costs and improve operational efficiency.

For example, a streamlined payment process allows staff to spend more time providing quality service and building relationships with clients. 

5. Improves Budgeting and Planning: 

Consistent client payment cycles help you plan for your own payment obligations in advance. 

When you know what to expect for incoming payments (and when to expect them), you can use this information to plan your own financial commitments, including vendor payments.

When vendor payments and other bills are paid late, this can come with added late fees. According to data from QuickBooks, late fees usually range from 1% to 2% monthly interest rate.

This means you are saving time with streamlined billing and collections and avoiding unnecessary expenses.

6. Supports Scalability: 

If the payment process is streamlined and efficient, onboarding new clients is more manageable. With these new clients comes higher revenue and an opportunity to grow your business.

In a 2024 report from Nuvei, payment optimization was found to increase revenue by up to 30%. Optimized payment cycles allow an MSP to accommodate more clients without sacrificing service quality.

7. Mitigates Risk of Delinquencies: 

Efficient payment cycles mitigate the risk of late or missed payments. 

Data from Paystand found that switching to electronic invoicing helps businesses get paid 77% faster. As a bonus, it can also reduce processing costs by 81%. 

This dual benefit of faster payments and cost reduction highlights the value of adopting efficient payment processes. 

8. Allows for Re-Investment into the Business: 

Faster payment cycles can improve liquidity. This allows MSPs to reinvest in technology, staff, and service improvement, all of which improve competitiveness and the ability to add value to their clients.

MSPs with better liquidity can quickly allocate funds to invest in upgraded hardware or software, improved training for their staff, or expanded service offerings. This reinvestment cycle, powered by faster payments, gives MSPs a competitive edge. 

9. Meets Modern Payment Expectations: 

As instant payments become the norm, clients expect payment processes to be as fast and easy as possible. 

A Federal Reserve study found that “80% of Americans are interested in leveraging faster payments to pay businesses.

”The Federal Reserve study also reports that 70% of respondents think enhanced faster payment capabilities are a key satisfaction driver.

With a more efficient payment cycle, you can satisfy your clients’ expectations and improve overall service satisfaction.

10. Encourages Compliance and Security: 

Carefully managed payment cycles promote compliance with financial regulations, including PCI-DSS and SAQ-A, and help companies implement best practices in data security.

Maintaining a structured, cyclical, and highly predictable payment process helps MSPs meet regulatory requirements. This includes ensuring sensitive financial data is handled consistently and securely.

Payment errors and omissions that might involve non-compliance are less likely to occur when payments-related tasks follow established protocols. 

This can help MSPs avoid potential non-compliance fines while improving the enterprise security posture, protecting both your MSP and clients from possible data breaches and financial fraud.

Next, we will discuss the specific strategies for creating a faster, more efficient payment cycle to help your MSP stand out. 

9 Proven Strategies to Optimize the MSP Payment Cycle

First, it’s essential to understand what an optimized MSP payment cycle looks like to demonstrate how the following strategies optimize it. 

‍Generally, an optimized payment cycle for an MSP is characterized by:

• Timely invoicing
• Clear and correct invoices
• Offering efficient payment methods (including credit cards and ACH payments)
• Automated billing processes
• A follow-up system is in place for overdue and unpaid invoices
• Client communication, including about their billing and payment operations, is transparent and consistent
• Billing issues (including MSP client payment disputes and discrepancies) are managed proactively
• The use of MSP-specific payment automation software

With a better understanding of the goals and components of an optimized MSP payment cycle, we will move on to the actionable steps you can take to achieve them.

1. Automated Invoicing Solutions

Automated invoicing solutions create and send invoices without manual intervention. It can also track late payments and send automated payment reminders. 

Depending on your chosen platform, other features can be particularly beneficial for MSPs.With AutoPay, you can use the payment automation software to: ‍

• Create custom rules to get paid on invoices automatically
• Increase the predictability of your cash flow
• Set custom rules for all clients or rules just for specific clients

For example, you can set AutoPay rules to automatically charge invoices only if the product/service item includes the word “Managed” or if the total invoice is less than $3,000. 

You can also create rules for when late payment reminders should be automatically sent.

This combination of automation and customization makes payment processing easier and more efficient for MSPs. 

The initial time spent setting up custom rules can save you countless hours in the long run, as payments will be automatically processed, and invoices will be automatically sent according to your preferences.

Another benefit of automated payments is minimizing the likelihood of invoice errors, which are a leading cause of late client payments. 

According to some estimates, up to 61% of invoices are paid late due to invoice inaccuracies.

Statistics from DocuClipper report that automated data entry has an average accuracy rate of 99.959% to 99.99%. 

‍Manual data entry has an average accuracy rate of 96% to 99%.

While that difference seems marginal at first glance, manual processes can significantly impact your overall billing accuracy and efficiency.

For example, for 5,000 data entries, automated systems could make between 0.5 and 2 errors, whereas human data entry could result in 50 to 200 errors. 

Payment Automation Case Study

Consider Circuit Saviors, a California-based MSP, and the results of switching to FlexPoint from their previous provider. 

With FlexPoint, they could add global matching rules for AutoPay. This way, staff would no longer have to match every payment to its contract or set approved amounts. 

Instead, they set custom AutoPay rules based on item categories and descriptions without extra work on each invoice. 

Ultimately, this move saved them 16 hours of monthly payment admin work. It also improved payment efficiency by 30% and increased cash flow by 30%. 

2. Digital Payment Methods

Offering a selection of digital payment options modernizes your payment cycle. 

Accepting credit cards, ACH payments, and mobile payments allows for instant processing and convenience for clients. These methods speed up the payment process and provide clients with a secure and reliable way to settle their accounts. 

When you offer payment methods your clients prefer, your client satisfaction rate improves. A PYMNTS Intelligence research study, conducted in collaboration with Ingo Money, quantified this improvement.

It reports that businesses offering six or more instant payment methods recorded a higher-than-average Customer Satisfaction Index score. 

B2B buyers also reported that not having their preferred payment method at checkout is the number one reason they would switch to another company.

A 2022 Balance Payments survey of more than 400 B2B buyers found that the number one reason B2B buyers switch to another company is if they can’t use their preferred payment method. 

This speaks to the importance of offering various payment options, including digital payments, to meet clients' needs and preferences.

3. Flexible Payment Plans

You can tailor payment plans to your clients' needs to enhance their satisfaction and ensure a more predictable revenue stream. 

Different ways to do this include staggered payments, customized billing cycles, and payment deferrals during financially tight periods. 

For example, you might allow a client to pay an annual subscription fee in small monthly chunks rather than a lump sum. This makes the service more manageable for the client and the income stream more predictable for you. 

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4. Proactive Communication and Client Education 

First, your clients must be aware of the payment methods and plans you offer to take advantage of them. 

This education begins when you onboard clients. Ensure all of the options available to them are covered in detail and that your clients understand them.

Onboarding sessions are also an opportunity to discuss any financial concerns or limitations your clients may have. This allows you to approach their payment plan proactively rather than waiting for potential issues to arise.

Once they are onboarded, continue educating your clients with regular communication and reminders. 

Written resources, including blogs, newsletters, and emails, are an excellent way to inform clients about new payment options or changes to current ones. 

You can also send automatic payment reminders to your clients via email or SMS when payment due dates are approaching. This notice allows them to make necessary arrangements and avoid late fees or penalties.

5. Real-Time Billing Updates

Use client portals where clients can view and manage their invoices and payments in real time.

Real-time billing updates within client payment portals help facilitate transparency and ease of use. 

Clients can check their invoices and current payments anytime and get proactive reminders about upcoming payments. This helps minimize delinquencies and late fees. 

In the case of invoice discrepancies, clients can bring them up with you immediately to minimize payment cycle disruptions. 

For example, suppose your client receives a billing update that they will be invoiced $3,200 the following week, but they only anticipated their bill would be $2,500.

If they don’t have real-time billing updates, they might not notice this discrepancy until after you charge them. Then, they can call their bank to issue a chargeback. This means they dispute the charge with their issuing bank.

In doing so, the funds are returned to the client, and you could be responsible for paying the chargeback fees. These can add up for MSPs. 

Data from Verifi found that each chargeback typically costs merchants between $20 and $100 per transaction. 

Save yourself the cost and trouble of chargebacks by implementing real-time billing updates for your clients. 

6. Rewards for Prompt Payments

Incentivizing clients to pay on time is another effective strategy to speed up the MSP payment cycle. There are different ways to do this, including offering discounts for prompt payments. 

For example, you might offer a 2% early payment discount on a client's next invoice if they pay their current invoice within seven days. 

Clients paying their bills faster improves your cash flow, which means you can pay your own bills quicker and keep your business running smoothly. 

In fact, data from PayStand found that companies that utilize early payment discounts note a 15% reduction in their average days payable outstanding (DPO). 

7. Regular Review of Payment Terms

Revising your payment terms regularly is also a good practice. This helps you keep your terms up to date with changes in the business environment and incorporate client feedback. 

This also ensures your payment terms are fair and competitive. You might adjust payment deadlines, late fee structures, or early payment discounts based on client needs or industry benchmarks.

Schedule a review of your payment terms at least once a year to ensure they remain sustainable and viable for your business and clients. 

To take stock of your current payment terms and how they could be improved, ask yourself:

• Are my payment terms clear and easy to understand? 

• Do they reflect the values and objectives of my business? 

• Can I tailor them to better serve my client?

• What are the most common payment issues my clients face?

The answers to these questions will guide you in making appropriate changes to your payment terms. 

8. Integration with Accounting Software

Integrating your payment system with your accounting software (such as QuickBooks Desktop, QuickBooks Online, and Xero) lets you track and report your finances in real-time. All financial transactions are recorded to be easily compiled and managed.

A fully integrated solution reduces financial errors and avoids unnecessary delays, ensuring your payment cycle functions smoothly.

With FlexPoint’s fully-integrated platform, you will benefit from features like:

• Seamless integration with existing tools, including PSA software like ConnectWise
• Real-time sync 
• Automated reconciliation
• AutoPay to automatically get paid on invoices and improve cash flow predictability

9. Dispute Resolution Mechanisms

As the high cost of chargebacks discussed above demonstrates, a proactive payment dispute protocol is worth creating. 

If the guidelines for handling disputes are clear to your staff and your clients from the beginning, there will be less room for ambiguity and confusion. This includes documenting the procedures and timelines for handling disputes. 

One way to provide this documentation is on a payment terms FAQs page. It should explain how to proceed with dispute resolution, what information is required, when to expect a resolution, etc. 

Technology can also prove to be a powerful ally in dispute resolution. 

CRM systems track disputes, manage communications, and add relevant documentation, so it will never be missed, no matter how small the detail.

An MSP might then do quarterly reviews of all disputes to identify emerging trends from this data. Over time, this helps identify common problems and ways of improving.

For example, these reviews could indicate that numerous clients are raising disputes about the same line item. 

To mitigate the likelihood of future disputes, the MSP can clarify those charges by making them more explicit in future invoices and improving client education and communication.

Developing a proactive dispute resolution and prevention protocol helps MSPs resolve payment disputes before they escalate and negatively affect client relationships and cash flow.

To streamline MSP payment cycles, you have many strategies and tools at your disposal. When you choose an MSP-specific payment platform, you can implement several simultaneously. 

Conclusion: Improving Cash Flow with Efficient Payment Cycles

We have discussed MSP payment cycle challenges and how they can negatively impact cash flow. 

Manual invoicing, inconsistent billing intervals, and payment disputes can all lead to delayed or reduced cash flow. 

However, implementing strategies like invoice automation, offering multiple payment options, and proactively addressing payment issues improves cash flow, client trust, and overall financial health.

The impact of these changes can be profound. For WJP Technology Consultants, they indeed were.

When WJP, a Texas-based MSP, saw an opportunity to improve its payment processes and overcome the limitations of its previous billing solution, it jumped at the chance.

FlexPoint partnered with WJP to simplify their daily accounting process, and invoice automation was a fundamental part of it.

With FlexPoint, WJP now had a unified view of upcoming payments and recurring invoices. They could also offer automated payments for their clients so they could store their payment method and set a payment date.

Switching to FlexPoint paid off for WJP.

The results were significant:

• A 30% increase in clients using AutoPay
• 3x faster payment processing
• 15% cost savings

Your business can achieve similar results when you streamline your MSP payment processes with FlexPoint's automated solutions.

Enhance your payment efficiency and accelerate your revenue cycle. 

Visit our website or schedule a demo to learn how we can help you optimize your payment cycle for better financial management.

Additional FAQs: Enhancing MSP Payment Cycles

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