How to Resolve Payment Errors: A Guide for Managed Service Providers

Data from PYMNTS reports that, in 2024, 80% of executives say they’ve lost business due to payment errors. 

Other data from the Credit Research Foundation also found that payment errors caused 61% of late payments. 

It is especially alarming, considering the consequences of late payments. For example, QuickBooks reports that 89% of businesses say late payments hinder business growth.

Furthermore, PYMNTS reports that 45% of U.S. small business owners forgo their paychecks due to cash flow shortages. Additionally, 22% struggle to cover essential bills, which means more than one in five face the risk of closure.

These statistics underscore a pressing reality for managed service providers (MSPs): payment errors can seriously affect operational efficiency and profitability. 

Errors in payment handling can manifest in various forms, such as incorrectly applied funds, delayed transactions, or failed authorizations. 

Each poses specific challenges that disrupt business continuity and client relationships.

This article examines common payment errors, their root causes, and actionable strategies for prevention and resolution. 

In addition, the article will discuss viable solutions that MSPs can use to elevate their payment processes, enhance accuracy, and strengthen their financial health.

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10 Common MSP Payment Errors

Payment errors arise from numerous factors, such as human mistakes, system malfunctions, or lapses in compliance. 

Each type of error poses unique challenges and has distinct implications for MSP operations and client satisfaction. 

For example:

• Human errors might lead to incorrect data entry
• Technical issues can disrupt transaction processing
• Compliance oversights may result in regulatory penalties

Effectively addressing these challenges takes a comprehensive and strategic approach.

This includes specifying and correcting errors and implementing measures to stop similar incidents in the future. This preserves client trust and enhances operational efficiency.

First, MSPs must be aware of the many payment errors that can occur within their operation.

Before exploring solutions, here are ten common MSP payment errors.

1. Incomplete Payment Details: 

Incomplete payment details are frequent challenges for MSPs. These include vague payment descriptions and incorrect client identifiers (such as inconsistent naming conventions, generic labels like "Client1," or ambiguous codes like "742"). 

When payments lack clear information to identify their purpose or origin, it is difficult to quickly allocate the funds to the correct client account or outstanding invoice. 

This results in "unapplied cash," which sits idle until the finance team can manually investigate and reconcile it. This process increases administrative costs and slows revenue recognition.

For instance, a client might make a payment with a generic description like "service fee" without specifying the client account or providing other relevant identifiers. 

The finance team must then expend considerable effort to trace and verify which client or services the payment pertains to. This situation creates inefficiencies and operational bottlenecks that strain resources.

Such issues often arise from poor communication between the MSP and its clients about payment requirements. 

For example, clients may not have been instructed to include information on invoices.

Without clear guidance, clients might omit essential information, leading to payment delays, manual reconciliation, and potential misapplication of payments.

2. Misapplied Payments:

Misapplied payments occur when funds are credited to the wrong invoice or client account. 

This can lead to a host of complications, including:

• Inaccurate financial reporting
• Client disputes over perceived overpayments or underpayments
• Disruptions to ongoing projects or service agreements

Misapplications often result from manual data entry errors, complex client account structures, or limitations within accounting software. 

For example, an MSP receives multiple payments from different clients on the same day. Due to a clerical error, one client’s payment is mistakenly credited to another account. 

As shown in the previous section, this can also result from clients making payments with incomplete payment details. 

Regardless, these errors can create confusion and necessitate extensive reconciliations. 

The financial and reputational impact can be significant, as clients may lose confidence in the MSP's ability to manage finances accurately.

3. Delayed Payment Processing:

Payment processing delays are a persistent challenge for MSPs, particularly when manual workflows are involved.

Research from Ardent Partners reports that manually processing invoices can take up to 80% longer than invoice automation.

Along with relying on manual processes, delayed payments can occur for several reasons. 

For example, slow approval cycles or outdated payment methods like paper checks. 

Delays in payments can disrupt an MSP's cash flow, impede the timely payment of operational expenses, and delay investments in growth initiatives.

Imagine a client’s payment is received but takes weeks to clear due to manual approvals or banking slowdowns. 

This creates cash flow bottlenecks, and MSPs rely on consistent cash flow to meet financial obligations. 

This leads to missed opportunities, strained vendor relationships, and client dissatisfaction. Depending on the extent of the cash flow shortage, the business may even be forced to close.

4. Data Entry Errors:

Human error during data entry is a leading cause of payment discrepancies in MSP operations. 

These errors can occur when entering client payment details, amounts, or references into accounting systems. 

Even minor mistakes, such as transposing numbers, can have significant consequences. 

For example, entering an extra zero in a payment amount could result in an overcharge. This necessitates refunds, corrective billing actions, and potential damage to client trust.

If the client sees this charge before you realize the mistake, they may contact their bank to dispute it. 

Similarly, undercharging due to data entry mistakes can create revenue shortfalls and administrative burdens. 

Consider these statistics from DocuClipper: automated data entry has an average accuracy rate of 99.959% to 99.99%, while manual data entry has an average accuracy rate of 96% to 99%.

Although the difference might not seem like much at first, manual procedures can notably affect billing efficiency and accuracy. 

For instance, with 5,000 data entries, automated systems may produce between 0.25 and one error, while human data entry could lead to 100 to 400 errors. 

This notable difference illustrates the potential of automation to minimize errors and improve precision in financial operations.

5. Outdated Billing Information:

Failed transactions due to outdated client billing information, such as expired credit cards or changed bank account details, are a common payment problem for MSPs and can be costly.

According to LexisNexis, the average cost of a failed B2B payment is $12.10 for businesses. 

When clients fail to update their payment information promptly, transactions may be declined, leading to service disruptions and the potential for late fees or penalties.

This issue is especially meaningful for MSPs utilizing recurring payment models, where reliable and prompt payments are crucial. 

Even a minor change in a client's payment information can cause transaction failures that impact multiple accounts. 

This often results in administrative challenges and service interruptions, negatively affecting client satisfaction and cash flow.

Moreover, the extra time and resources finance teams allocate to manage these declined payments can lead to inefficiencies. This further impacts operational effectiveness and raises administrative costs.

‍6. Currency Conversion Errors:

Currency conversion errors result in financial discrepancies for MSPs that serve international clients. 

These errors may stem from using outdated exchange rates, applying incorrect conversion fees, or failing to account for fluctuations in currency values. 

Even minor miscalculations in conversion rates for MSPs serving international clients impact billing accuracy, profitability, and client trust. 

These mistakes might happen for various reasons.

These include: 

• Reliance on outdated exchange rates
• Manual data entry errors
• Inconsistent or unreliable data sources to determine the conversion value

For example, an MSP charges a client based on an outdated exchange rate. This inadvertently underbills or overbills the client.

Underbilling due to an outdated lower rate can lead to revenue losses. Overbilling due to a higher rate could provoke client dissatisfaction, payment disputes, or even the loss of business.

Currency conversion errors also introduce complexities in financial reporting, requiring careful tracking and reconciliation.

7. Duplicate Transactions:

Duplicate transactions, where clients are charged more than once for the same service, severely undermine client trust and create substantial administrative burdens. 

These mistakes are frequently the consequence of human error, though they can also be caused by system malfunctions or incorrect batch processing. 

Whatever the reason, these kinds of events lead to poor client experiences and frequently make clients doubt the MSP's dependability and expertise. 

For example, suppose an MSP inadvertently processes a client’s payment twice because of a software error or manual oversight. 

This can harm the client relationship and result in future transactions being scrutinized more closely. 

Handling these errors takes additional time and resources. These issues must be investigated, refunds issued, and corrective action must be taken to discourage recurrence.

Duplicate transactions may also have substantial financial repercussions. 

Beyond the direct cost of issuing refunds, there are often hidden expenses, such as bank fees or processing charges associated with reversing transactions. 

Duplicate transactions can have financial implications, including lost revenue, increased refund costs, and eroded client relationships. 

8. Authorization Issues:

Authorization issues occur when transactions are declined because of incorrect or expired payment credentials. 

This can happen when clients use outdated credit cards or fail to provide accurate authorization details. Such errors lead to failed payments and often cause service interruptions. 

Clients may not be aware of these issues until a payment is rejected, which can create frustration and potentially harm their trust in the service provider.

Authorization issues can have severe implications for managed service providers (MSPs). Delayed payments disrupt cash flow, affecting the company's ability to cover operational expenses or invest in growth. 

These issues also increase the administrative burden, as finance teams may need to manually track down clients and resolve the problem. 

This type of outreach consumes valuable time that could be used for other critical business tasks.

9. Compliance Violations: 

Failure to adhere to financial regulations and data security standards can seriously affect MSPs, including payment blocks, fines, and reputational damage. 

To protect sensitive client data, credit card information must be handled strictly according to compliance requirements, such as the PCI DSS (Payment Card Industry Data Security Standard) and SAQ-A. 

Non-compliance can lead to regulatory scrutiny, client churn, and potential legal liabilities. 

Consider a data breach involving payment information. In addition to jeopardizing client trust, the PCI SSC can impose fines of up to $500,000 per violation. 

The situations aren’t rare, either. 

In the 2024 Prevalent Third-Party Risk Management Study, 61% of companies report that they experienced a third-party data breach or security incident in the last 12 months. This marked a 49% increase from 2023. 

10. Technical Failures: 

System outages, payment gateway malfunctions, and software bugs present serious difficulties to MSPs' smooth payment processing, often leading to failed or delayed transactions. 

These technical failures can stem from various factors, including hardware malfunctions, software incompatibilities, or external issues such as network disruptions and service outages beyond the MSP’s control.

Even brief system downtime can have a ripple effect, resulting in lost revenue, operational slowdowns, and increased administrative burdens as teams scramble to resolve the issue and manage client concerns. 

For clients, these disruptions often lead to frustration, eroded trust, and potential service delays, particularly when critical payments are blocked or delayed due to unexpected technical problems. 

In a business environment where reliability is paramount, technical hiccups can quickly escalate into larger operational and client retention challenges.

10 Effective Strategies to Prevent and Resolve Payment Errors

Preventing and resolving payment errors demands a strategic, multi-faceted approach. This approach must combine automation, proactive communication, staff training, and compliance measures. 

These strategies help MSPs minimize risk, improve operational efficiency, and enhance client satisfaction.

1. Cloud-Based Payment Software:

Cloud-based payment software provides real-time access to financial data. Then, MSPs can track payments, monitor cash flow, and generate accurate financial reports from anywhere. 

Unlike traditional on-premise systems, cloud solutions offer seamless integration with other tools. This eliminates the need for manual data entry and reduces the likelihood of errors.

For example, an MSP using a cloud-based platform can instantly & automatically reconcile client payments, identify discrepancies, and provide timely updates to clients.

Additionally, cloud-based systems offer enhanced security features, such as encryption and multi-factor authentication, to protect sensitive financial data.

2. Automated Invoice Matching: 

Automated invoice matching tools streamline payment reconciliation by automatically linking incoming payments to their corresponding invoices. 

This increases financial accuracy and decreases the likelihood of human errors. 

It also liberates critical staff time for higher-value, strategic tasks such as financial planning, client engagement, and service enhancements.

For example, an MSP using automated reconciliation software can quickly identify and flag unmatched payments for review, preventing errors from slipping through the cracks. 

Automated systems also provide extensive tracking and audit trails. 

These help MSPs maintain accurate financial records, strengthen compliance, and gain better insights into payment trends and performance metrics.

3. Real-Time Payment Processing:

Real-time payment processing bolsters client satisfaction and cash flow stability by removing delays and delivering instant transaction confirmations.

When payments are processed in real-time, MSPs can access funds more quickly, meet operational expenses, and invest in growth initiatives without delay.

For example, an MSP offering real-time processing can provide clients with instant receipts and payment confirmations, reducing uncertainties and improving the overall payment experience. 

Real-time processing also minimizes the risk of payment delays caused by slow approval cycles, outdated payment methods, or manual workflows. 

Unlike traditional bank transfers, which may take several days to complete, or checks that carry the risk of bouncing, real-time transactions provide near-instantaneous confirmation and finality.

4. Regular Data Audits:

Conducting regular data audits helps MSPs maintain accurate client payment records and identify discrepancies early. 

Audits involve cross-checking client accounts, verifying payment histories, and ensuring all payment details are current. 

By proactively addressing errors, MSPs can stop them from escalating and demonstrate a commitment to financial transparency and accuracy.

For example, an MSP that identifies a recurring issue with outdated client billing information during an audit can take corrective action. These actions might include implementing automated reminders or updating client onboarding procedures.

This comprehensive guide to performing MSP payment audits includes actionable strategies and industry-specific insights.

5. Robust Validation Checks:

Validation checks are automated controls that verify the accuracy and completeness of payment details before processing transactions.

These checks include verifying credit card expiration dates, matching account numbers, and validating client billing addresses. 

Validation checks catch potential errors before they occur, reducing the likelihood of failed payments and minimizing the need for manual intervention.

For example, a validation check might uncover that a client’s credit card has expired. If this is discovered before processing the transaction, the client has the opportunity to update their payment information.

This reduces the risk of declined transactions and service disruptions.

6. Clear Communication Channels:

Quickly resolving payment problems and preserving confidence depend on open communication with clients.

When clients encounter billing concerns, having well-defined communication pathways reduces confusion and demonstrates the MSP’s commitment to transparency and customer satisfaction.

Clients should have easy access to support and receive timely responses to their billing inquiries. 

This can be achieved through multiple channels, such as dedicated email support, phone lines, chat services, or online portals. Offering several ways to reach you ensures clients can use their preferred method. 

Prompt and personalized responses resolve issues faster and reassure clients that their concerns are taken seriously.

Providing transparent billing policies, regular updates, and clear escalation paths ensures clients understand payment expectations and can address issues promptly. 

MSPs should clearly outline billing terms, due dates, fees, and dispute procedures in client agreements and communicate any changes proactively. 

Clear escalation paths help clients know whom to contact if their issues are not resolved initially, preventing frustrations from escalating.

For example, an MSP can offer a dedicated billing support portal where clients can submit inquiries, track payment statuses, and receive real-time assistance. 

This centralized hub lets clients view their billing history, submit documents, and access FAQs or troubleshooting guides.

Such measures improve efficiency, minimize disputes, and foster trust by establishing an advantageous, transparent billing experience.

7. Use of Payment Gateways:

Payment gateways are secure platforms that facilitate electronic transactions between clients and MSPs. They provide essential tools for managing payments efficiently and securely. 

Reliable gateways have advanced security features, including encryption, fraud detection, and tokenization, safeguarding sensitive client data and promoting accurate transaction processing.

Selecting reputable payment gateways helps MSPs mitigate the risk of technical failures and reduce transaction errors. 

Consequently, this enhances customer confidence by offering a secure and reliable payment process.

For example, a payment gateway that facilitates recurring billing provides consistency and convenience, especially for clients using subscription-based services.

Real-time validation streamlines the payment process by recognizing concerns like expired cards or incorrect details. 

Thanks to this prompt feedback, clients may immediately fix mistakes, improving the entire payment process and reducing interruptions.

8. Employee Training:

Regular employee training on payment technologies, security protocols, and internal processes equips staff with the skills to manage payment systems effectively. 

Well-trained employees are better prepared to identify potential issues, resolve errors quickly, and adhere to industry best practices.

For example, periodic training sessions on new payment technologies can help employees remain current and minimize errors related to outdated procedures or unfamiliar tools.

9. Diverse Payment Options: 

Offering multiple payment options, such as ACH transfers, credit cards, and digital wallets, provides clients with flexibility and reduces the likelihood of payment delays. 

Clients have different preferences and needs, and accommodating those preferences can improve client satisfaction and encourage timely payments.

According to data published by Statista, 70% of clients prefer to use a payment method that doesn't share their financial information with their MSP. 

When you accommodate this and other preferences, your client satisfaction ratings will increase. A study from Microsoft Dynamics 365 supports this conclusion, finding that 95% of satisfied clients will be loyal to a business or brand.

As client loyalty increases, cash flow will, too. According to a Bain & Company report, a 5% increase in customer retention can deliver at least a 25% increase in profit.

10. Compliant Software:

For MSPs to protect client data and maintain uninterrupted payment processing, compliance with financial regulations and data security standards is critical. 

Compliance-focused tools ensure all transactions adhere to industry standards, reducing the risk of fines, legal liabilities, and reputational damage.

For example, software that automatically enforces PCI DSS compliance simplifies managing sensitive payment data and minimizes the administrative burden. Your clients will also appreciate knowing their data is protected.

FlexPoint is one such solution designed with the unique needs of MSPs in mind.

This MSP-specific payment automation software goes beyond compliance with a robust suite of features to streamline financial operations and mitigate common payment challenges.

For example, clients have access to a branded passwordless payment portal to review invoices, manage payments, and update billing information. 

With this portal, FlexPoint supports real-time payment tracking, which gives you unparalleled visibility into financial operations. 

This transparency aids in identifying and addressing potential issues quickly, allowing for proactive resolution and enhanced client communication. 

With FlexPoint, MSPs can also accommodate diverse client payment preferences through multiple payment options.

In the competitive MSP environment, where every payment counts, FlexPoint provides a dependable, efficient, and client-focused approach to payment automation. 

It strengthens financial health, streamlines workflows, and promotes long-term client trust and loyalty.

FlexPoint is an invaluable asset for MSPs seeking to optimize their payment management processes.

Conclusion: Ensuring Smooth Financial Operations in MSPs

Effectively managing and preventing payment errors is vital to preserving operational stability, client satisfaction, and financial health in the MSP industry. 

Adopting proactive strategies, leveraging automation, and adhering to compliance standards helps MSPs reduce administrative burdens, improve accuracy, and build stronger client relationships.

FlexPoint’s automated payment solutions offer real-time tracking, error detection, and seamless integration capabilities.

The payment platform empowers MSPs to streamline financial operations and minimize the risk of payment disruptions.

Streamline your MSP's payment management with FlexPoint. Our automated solutions help reduce errors and improve financial accuracy. 

Schedule a demo to learn how we can optimize your payment processes and safeguard your financial operations.

Additional FAQs: Addressing Payment Errors

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