Hey folks, Just trying to get a pulse on what the consensus is. I’m year 2 into this and I’ve never had to deal with it before. How late would you allow a client to be with payments? Do you go by day or amount?
I have a client that is consistently late with payments. They’re a rapidly growing company and at the rate we’re adding users I don’t think it’s a financial problem, but I can’t seem to get them to respect the due date on the invoices. I just cut off all services except the ones that would bring them down (Email, website, etc) this week at $80K; they’re 45 days late on the oldest invoice. Since they’re a managed services customer part of me feels like i’m over reacting. 80K is a lot of money though so i’m a little conflicted. If i’m being honest, this is my largest client and the only client I have at this scale; I don’t think 80K is a lot of money at their level. Is this normal for larger companies? Am I over reacting?
Have you had a conversation about ensuring invoices are paid on time?
From their perspective they may be surprised / quite frustrated at a sudden cut off of all services when in the past they have never paid on time and from their perspective it has never been a problem.
45 days late is pretty damn late. I think the best solution is to pick up the phone and have a conversation about how going forward invoices must be paid on time or service will be cut off and in addition to that, what steps can you guys agree on to clean up the unpaid balance.
Rapidly growing business often face significant cash pressure. All of a sudden cutting them off and demanding instant payment when they are not used to you saying anything at all about late invoices - that might be a way to lose a client or seriously piss one off anyway.
To provide some context, I do not work in IT, I work in Accounting so my perspective may be different from those in the MSP space.
Thanks for the feedback!! It’s great to have a sound board for the business stuff. That side of the MSP life is all new for me.
It’s good to hear i’m not over reacting. I’ve had the conversation with my contact for the company. From day one the payments were late and I’ve been complaining about it from day one. Since November I’ve been threatening him that I’d cut him off but nothing has changed. I’ve literally brought it up every other day for the last 2 weeks. I was told on Monday the payment is being processes, i gave it a day expecting payment today… Nothing. It’s only getting worse because it seems like every other month they increase their spend with us.
I have to get this under control but I wanted to make sure this isn’t “normal” for larger companies first. They just moved their Microsoft Tenant to us, they’re switching over all their phones through us, we just started a network/server upgrade for all 5 of their locations. I’m invoicing a ton and they eventually pay, but I don’t have to tell you guys how much i’m outputting to support these folks at 180 users. That’s why i’m so conflicted. I think i’ll have another conversation and continue to follow through on blocking support services and new hardware purchases. Does anyone else have a reason why that’s a bad idea?
For me, this is just a touchy subject but I think cutting services is the right approach but only if you’ve had the conversation with your contact and laid this all out.
I used to work for a company that had this issue of paying on time and I would have vendors reaching out to me directly, for whatever reason, I could get things going so they were paid.
I understand your pain! I bet many of us here have felt the same. Cutting services should be a last ditch if you feel you will lose the contract or be forced to escalate collections - although I know how tempting that is.
One constructive approach is to instead offer substantial discounts for ‘early’ payments, and substantial interest charges for overdue accounts. I would consider writing a policy update letter to ‘all clients’ offering them the opportunity to take advantage of the discounts, while also informing them of the interest charges. You can usually write this diplomatically so it doesn’t feel like threat and punishment, but necessary management. Some companies I know offer 2% net 15 days and full payment at 30 days after which 2% interest is charged per month. That offers substantial value in paying early, as well as understandable consequences of paying late - if they pay at more than 30 days they are essentially forfeiting a 4% savings - that ought to get AP’s attention!
If this doesn’t work I would set a meeting to discuss, because your exposure as a service provider is fairly high if they drag out their payments and then decide not to pay you or dispute the charges.
That said, I have had clients who were consistently late, but also dependable, they also never had issues with our billing, so I allowed the lateness, but factored my outstanding exposure as potential loss - this meant for me that so long as they made the payments even late, the most I stood to lose was 2 months at my cost, which I decided was worth the risk given the ongoing business if I kept them as a client for at least 2 years.
No offense to the other responses but I like these last two suggestions. I just floated the offer to them of a small discount for paying early (Going forward). I think i’m going to combine the last two as a standard offer going forward. If they agree to automatic payments i’ll discount the rate.
I’m glad I asked the question. I feel justified in my initial response to them and I have a plan for this client and future clients. Thanks guys!!!
I have been through this. Basically they are giving you the “stretch”, because for some reason you are lower on the totem pole for getting paid. What I would do, since this is a recurring problem, is require forward ACH payments like others have suggested. That effectively makes you a vendor that is going to come out no matter what, putting you higher up on the totem pole. Don’t play bank! Can you justify a no interest 80k loan? That’s a ton of money!
All good responses here. I will add that on my invoices I add a clause about late fees every x amount of days over the due date. Kinda tells them that you are no different than any other “utility” they might have.
I have one customer that is always late and pitches a fit about the late fees, no matter how small or large the bill is. They are not under my MSP model, and because of all of the late payments I didn’t want to put them on MSP anyway.
They just asked for a copy of their usernames/passwords to their network, which means they will probably be working with another IT company. I can say with certainty, I am actually glad if they move on.
So we offer our clients a small discount to pay via direct debit which is automated. The price is a bit higher to pay manually. We caveat late payment fees on our invoice Ts and Cs, which are outlined here: AJRB Services | Support Center
This works well for us. We do however give a bit of leeway to clients. We give them the option to inform us (at least) 48 hours before the invoice due date if they’ll have trouble paying, then we waive any late payment fees and extend the invoice date.
Suspension/termination of services is the last thing I do as from experience it tends to result in them leaving, which equals less revenue than a late payment. That said, a discussion has to be had when it’s a regular occurrence. The client should respect that you providing a service incurs cost to you that you have to cover with the revenue of invoices.
The last measure we have done before, but rarely do, is send a letter with tracking. I’ve had a client before claim that they never received the emails. So I sent a letter and they signed for it then claimed they never received the letter, so I sent them a screenshot of their signature where they signed for the letter. They paid the same day!
A little different, but I worked in a pharmacy that had weekly compliance packaging that was billed monthly (similar to MSP contract) we eventually pushed all of them to have a CC on file that gets billed automatically on the first of the month. We offered to have an itemized statement sent to them with the CC receipt and they could question charges if they wanted. Most never questioned it.
We also had an 18% annual interest rate (1.5% monthly interest) but that seemed very low to me. I think having a slightly higher interest, or a late fee is usually enough incentive to pay on time. I have also seen models where it is a lower/moderate late fee assessed every 5 days from the due date.
Doing things like requiring equipment purchases to be prepaid can minimize your risk as well so you are limiting liability to labor for the most part.