So, you want to launch a small business or reposition your company as a managed service provider (MSP). What steps can you take to maximize your chances for success? I’ve written a four-part blog to cover that very question. Tune in each day this week for the next chapter. Here’s part 3: Cash flow.
I was speaking with another entrepreneur — a lawyer — last week, and asked him what single piece of advice he’d give to people who are preparing to launch a business. He said the number one priority has to be managing cash flow.
Even if you complete a successful project, do great work and win respect from customers, any project with unpaid invoices has to be considered a failure, he noted. Lining up managed services contracts isn’t enough. You need a tireless person to chase payment on outstanding invoices.
The entrepreneur’s advice:
- Have a point person in your company who chases payments from customers. Don’t delegate this responsibility to multiple people. That way, a single person will have a complete view of the situation.
- All of your contracts and invoices should clearly articulate when payment is due (upon receipt, net 30 days, etc.).
- Include a potential penalty (interest fees, etc.) in bold letters on your invoices, articulating that late payments will actually trigger increased charges.
- Your CRM and accounting systems should be automated to trigger reminders when payments are overdue. Follow-up with both and email and a phone call to the client.
- Ongoing communications should recap all previous communications, including specific dates and details (”We spoke with your CFO on June 1, 7 and 15 about this. He assured us immediate payment but it has still has not been received.”)
- Escalate communications and go right to the top (your customer’s CEO) if department managers, directors and other contacts are unresponsive to your requests.
Any other tricks of the trade to get overdue invoices paid? I’m all ears.
Posted In: Finance | Sales | Service Level Agreements
Tags: Entrepreneur | how to start a business | Managed Service Provider | Managed Services | MSP | starting a business
Interact: Add a Comment | Trackback Link | Permalink
Share: digg | del.icio.us | Technorati | StumbleUpon
Subscribe: RSS Feed
Meet regularly face to face with your clients. That way, they need to look you in the eyes during conversations including ones about overdue payments.
Our 2 cents…
1. Communication, make sure that you have a standardized communications process for your invoicing by establishing a reminder email/letter/phone call to each client at regular intervals regarding their billing. For example, if you have Net 30 Terms, send out a reminder at 15 days about the upcoming due date, another one at 30 days when the invoice is due, a past due at 45 days, and a more forceful notice at 60. Make sure the customer is aware that if they reach a specific threshold that the matter will go to your attorneys for review.
2. Documentation and Sign off, if you are performing any T+M related functions then make sure that your staff is properly documenting the work performed and consider requiring the customer to sign an acceptance of the work at the end of each visit or project (ConnectWise has a great feature that does this, not sure about AutoTask). This eliminates much of the back and forth in the future over time discrepancies, skill set of engineer, and work performed!
3. Good Contracts, make sure that your lawyer addresses late payments, interest, collection/attorney fees, jurisdiction, and other important legal terms in your contract. A helpful addition to any contract is setting a time limit on how long a customer has to dispute a bill. That way if the invoice gets to 60 days out, the client cant come back and start debating the service that was performed.
4. Bill in Advance, if your a pure MSP provider then you should be billing in advance for your services. If the client doesnt pay, then you can always threaten to not provide the service for that month in till they do. It may seem harsh but you have vendors to pay and payrolls to make and your providing a service that is often a replacement for an internal IT department. They wouldn’t withhold payroll from an IT department…
Hope this helps.
Nick: As usual, you offered the type of depth and clarity that only a true MSP could articulate. Thanks.