Aging A/R Is A Growing Problem For MSP Businesses

Accountants can be managed services businesses owners’ best friends. Understanding how to track and control cash flow and optimize the collections process are crucial assets in organizations that depend on continual growth. MSPs rely on their own financial reserves to expand sales and marketing efforts and increase their services capabilities.

Self-funding is a critical objective for any business. The less need for financing, the lower the risk. With interest rates on the rise and the uncertainties around lines of credit, the only sure bet when expanding an MSP organization is having the cash on hand to pay for those activities. Whether hiring technicians, leasing new facilities, or contracting with marketing firms to drive lead generation, no owner wants to add unnecessary expenses to their company’s bottom line.

Aging accounts receivable (A/R) have the same effect. The longer clients delay payments, the less money MSPs have available to implement expansion plans—one side essentially gets an interest free loan at the other’s expense. It’s important for business leaders to understand that concept when developing or refining collections policies. A poor strategy can slow payments and rapidly inflate the company’s A/R balance.