Everybody likes to get paid on time. That includes MSPs who monitor, maintain, and secure their clients’ IT environments.
Chronic late payers can cause many problems. Small businesses particularly — including most MSPs — depend on a healthy cash flow to make payroll and pay real estate leases, insurance, taxes, utilities, and assorted suppliers. They don’t have huge bankrolls to tap into if cash flow wanes.
Thankfully, chronic late payers are more of an exception for Triada Networks, said Founder and CEO Raffi Jamgotchian. “I would say it’s less than 10% of our overall customer base.”
Past-due payments happen infrequently for IT services firm Ekaru, too, according to Founder and President Ann Westerheim. She credits that to an organized finance person who “keeps a diligent eye on receivables.”
That said, troubles can snowball for MSPs if payments are late. That’s especially true for business owners who are less assertive in chasing down payments.
Why It Becomes a Problem
Raffi Jamgotchian
Low-margin clients with delinquent accounts can be particularly problematic for MSPs.
“It means you’re paying out of pocket for their services while they are riding for free — especially if it lasts multiple months,” Jamgotchian explained. MSPs often have vendor contracts tied to the number of licenses used, putting them on the hook financially if clients delay payment.
When Triada Networks operated on a tighter budget, this issue was more significant. Now, with a financial buffer in place, there’s less strain if a client defaults. “But it’s still something we need to keep an eye on,” Jamgotchian noted.
Chronic late payers can also jeopardize a company’s payroll, added Westerheim. “Our employees have bills to pay and need their paychecks on time. As we complete work, if we’re not paid by clients, then we don’t have the funding to pay our team. We do work, and we expect to be paid in a timely manner.”
The Dog Ate My Invoice
Like kids who don’t turn in their homework, clients provide all sorts of excuses for late payments. Here are some common ones, according to Google:
- The bill never arrived.
- System error
- Invoice dispute
- The bill was accidentally discarded.
- The check is in the mail.
Sometimes, there are legitimate reasons. For example, clients at times may stretch their credit cards too far, hence their inability to pay on time, said Westerheim. “In a very few cases, a client has hit an extreme financial crisis.”
That said, Jamgotchian has heard reasons including, “Sorry, I forgot,” “I didn’t get it,” and “It was in Spam.”
Ann Westerheim
Surprisingly, one instance allowed Triada Networks to improve operations for a client and benefit from it. It was when a larger client was always late, which was hurting his own company, he recalled. “We dug in and found that its internal process had lots of bottlenecks and inefficiencies. So, we helped automate and fix the process.”
Remedying the Situations
To avoid delinquent payments, Westerheim emphasizes the importance of accurate, prompt invoicing. If a client falters, she recommends addressing the issue directly. Financial challenges can be embarrassing, but open communication can lead to solutions.
If a client spots an invoicing error, fix it immediately, she insisted. Don’t delay reaching out if a payment is late. “If you don’t have good follow up, some people may not think the due date matters,” she said.
Jamgotchian suggested offering alternative payment methods like ACH and credit cards, and using automated reminders. “It’s much softer when the ‘system’ reminds them, rather than having us badger them.”
By taking these proactive steps, MSPs can mitigate the risks of late payments, ensuring a healthier cash flow and stronger client relationships.
Featured image: iStock
