Business Ethics and Expectations: The Challenge of Late-Paying Clients
The world of managed service providers (MSPs) is rife with challenges. From staying up-to-date with the latest technological advancements to ensuring timely support, the journey is anything but easy. Among these hurdles, one issue stands out prominently: dealing with clients who consistently pay late but have towering expectations. This balance of delivering on expectations while managing cash flow is one that every MSP grapples with. But how should such situations be navigated?
Imagine this: an established client, already two invoices behind in their payments, sends an email that reads, “Hey, we have a new starter starting this morning. Can you set them up with a laptop and M365 etc?” Despite previous requests to fill out a direct debit form and repeated reminders about the outstanding invoices, the emails seem to disappear into a black hole. What should a responsible service provider do in such a scenario?
Ensuring Payment Compliance
Many MSPs have adopted the mantra: “Don’t service them until paid up.” It’s a simple policy, ensuring a line is drawn in the sand. A company can protect itself from potential financial pitfalls by limiting outstanding invoices. A clear stipulation, like not letting a client get more than one invoice behind before services are discontinued, gives service providers a contractual advantage. This, in turn, becomes an invaluable asset if disputes escalate to legal levels.
Incorporating Policies in Contracts
A clear policy is one thing; incorporating it into the client agreement is another. Such stipulations can serve as a safety net. Service providers arm themselves with a contractual defense by making clients aware of the repercussions of late payments right from the outset. Clients forewarned about potential service interruptions due to non-compliance will likely be more diligent.
Balancing Business Needs with Payment Expectations
However, adopting a stringent payment policy doesn’t have its own challenges. Businesses that insist on timely payments might risk alienating certain clients, especially larger corporations. It’s common for sizeable companies to have a consistent yet delayed payment cycle, often 60 or 90 days behind the due date. As a result, smaller service providers face a tough decision: adjust to the payment terms of these big players or potentially lose a valuable client.
The solution? Open communication. By inquiring about payment terms during the onboarding process, MSPs can better align their expectations with their client’s expectations. This step can significantly reduce friction and potential misunderstandings down the line.
Establishing Trust Through Communication
An effective way to communicate in such situations can be: “We’d be happy to get your new hire set up just as soon as your invoices are paid and you’ve set up a direct debit.” It’s essential to approach clients not as adversaries but as partners. Reminding them that your company is not a charity and a quid-pro-quo approach is only fair can be done tactfully.
Moreover, many MSPs have moved towards only accepting Direct Debit (DD) for their services. This trend is born from the experience that clients resistant to DD often prove inconsistent with their payments. Flexibility might be essential for larger clients, but for typical small to medium-sized enterprises, stringent policies can be non-negotiable.
The world of MSPs demands a delicate balance between ensuring quality service and maintaining financial health. As service providers navigate the challenge of late payments against high client expectations, clear policies, open communication, and strategic flexibility emerge as the keys to success. Businesses must remember: while they should be accommodating, they are not charities. Standing firm on payment expectations safeguards the company’s interests and sets a precedent for future interactions.