Best Practices for Cash Flow Excellence for MSPs

Cash flow is king

This axiom holds true for any business, but especially for MSPs. Margins are being squeezed, and it’s becoming increasingly difficult to pass along cost increases to your clients. All of this makes it imperative that you get the most out of your existing business, and there’s no better way to do that than by achieving cash flow excellence.

You can read more about cash flow excellence here <link>, but the key thing to remember is that cash flow is foundational to your success, and there are actions you can take to optimize it. We like to call these the best practices, and we’ve developed these best practices not only from our own experiences, but from the experiences of our MSP clients as well. 

In today’s competitive environment, optimizing your accounts receivable (A/R) and streamlining payment processes can make a significant difference. In this post, we’ll cover actionable strategies that can help you achieve cash flow excellence.

1. Invoice early for recurring invoices

One proven strategy is to invoice early – as much as two weeks before the end of the month, for any recurring invoices where the timing and amount is fixed. For example, send April invoices by March 15th. This sets clear expectations for payment while allowing a comfortable two-week grace period for clients. Set the invoice and due dates for the first of the following month, and let your automated payment processing take care of the rest. We recommend doing this for any recurring invoice amount, such as your all-in seat price.

Have a reminder sent automatically a couple of days before the payments will process for these invoices.

You get certainty for your cash flow forecasting, as will your clients, and you get a heads-up on any payments that are at-risk, allowing you to address issues prior to incurring additional servicing costs.

2. Get Paid Up Front for Hardware

When it comes to hardware or other physical products, require payment up front. You are not a bank, so there’s no reason to essentially lend your clients money. Not only does this increase your financial risk, but it also means you don’t have that money for anything else. At the very minimum, make sure you get paid for the hardware before you have to settle your bill for the hardware. If you end up using a line of credit to cover a hardware bill simply because your client hasn’t paid you yet, you could erode your entire margin on that hardware.  So ideally get payment up front, before you even order the hardware.

3. Simplify the Payment Process

The easier you make it for your clients to pay you, the more likely they will. Strange how that works, right? 

Evaluate your invoicing and payment systems to eliminate friction points that might delay payments. Streamline your invoices, offer multiple payment options, and ensure your payment platforms are mobile-friendly. When paying is hassle-free, your clients are more inclined to settle invoices quickly.

4. Autopay for Every Client

Automated payment systems are a game changer. Wherever possible, set up autopay options for your clients. Autopay not only reduces the administrative burden of chasing payments but also ensures a predictable cash flow. Clients benefit from convenience and businesses gain from timely payments—a win-win situation.

While autopay may not work for every client, it is effective for most. Over time, you should identify any clients not using autopay and understand the reasons behind it.

5. Transition New and Legacy Clients to Autopay

For new clients, establish autopay as the default method. This sets a professional tone and helps manage expectations from the outset. 

For legacy clients, make the transition to autopay where possible. Communicate the benefits—such as enhanced convenience and reliability—and consider offering incentives to encourage a smooth shift. This gradual transition can lead to more consistent revenue collection across your client base. Sometimes, you might just have to show them, and they’ll never look back.

6. Automate A/R Follow-Up with Escalating Language

Doing your own manual follow-up on overdue accounts is not a pleasurable task. One of the tenets of cash flow excellence is that you shouldn’t have anxiety about cash flow, and that includes collections. Automate follow-up, on a customizable schedule that works for your business, and use escalating language. This approach not only saves time and stress, but also maintains professionalism while encouraging timely payments.

7. Monitor and follow up on failed payments the day your invoice payments occur

Whether or not you have automated your payments, it’s important to seek updated payment details early and often. Appoint someone on your team to review any failed payments and contact customers for updated information. If possible, automate this process using chasing or dunning software.

8. Establish Clear KPIs for Accounts Receivable

To manage cash flow effectively, it’s essential to have clear, measurable KPIs for your accounts receivable. Track metrics such as Days Sales Outstanding (DSO), the percentage of invoices paid on time, and aging reports. These KPIs provide insights into the effectiveness of your credit policies and collection efforts, enabling you to make data-driven decisions to further enhance your cash flow.

Sample Invoice Flow for a Customer’s Month

• Recurring Invoice Creation: A recurring invoice is created two weeks early on the 15th of the month.
• Invoice Distribution: Invoices are automatically sent out by your payment platform.
  • Notification: Notices inform your customer that they are on autopay and no action is required.
  • Early Payment Option: Provide a payment link for customers who may want to pay early.
  • Payment Portal: Include a link to your payment portal so customers can manage their payment profiles and ensure you have the most up-to-date payment information.
• Reminder: Two days before the end of the month, send a reminder about upcoming payments.
• Non-Recurring Invoices: At the end of the month, generate any non-recurring invoices, ensuring they are due on the 1st of the following month—or dated the 1st with the provided terms (e.g., Net-7).
• Auto-Processing: Have your system auto-process these invoice payments on their due dates.
  • Receipt Issuance: Send a receipt along with a copy of the paid invoice for records; this reduces the number of A/R support requests.
• Follow-Up: After your payment run, review any failed payments and have your team follow up immediately for updated details.
• Overdue Reminders: Send out overdue reminders at 1, 7, 15, 30, 45, 60, 75, and 90 days for accounts on autopay. You may use a different schedule for those not on autopay, with adjusted language.
  • Use escalating language in your email templates—starting friendly and becoming firmer, potentially indicating that services may be suspended if payments are not made.
• Monthly Reconciliation: Reconcile your payment settlements each month to catch any issues or errors early, ensuring you have a clear picture of your actual cash situation.

Conclusion

Cash flow excellence is not about quick fixes; it’s about the consistent, strategic practices that foster financial stability. By invoicing early, securing upfront payments for hardware, simplifying the payment process, leveraging autopay, automating A/R follow-ups, and tracking clear KPIs, your business will be well-equipped to maintain a steady flow of cash and support sustainable growth. Start implementing these best practices today and watch your cash flow—and business—thrive.