An operating expense often overlooked by a young Managed Services firm, but one that can be as crippling to the organization as any other potential financial blow.
Payment upon service isn’t the generally used terms for most professional IT Service firms. You send an invoice (usually once a month), and you wait to receive payment. Patiently.
The faster you send your invoices, the faster you get paid. Usually.
Now you may be a very responsible computer consultant, and consistently mail all of your invoices out on the first of the month. But that doesn't mean your clients will be mailing out your check on the 2nd.
You’ve got your own bills to pay. You set projections and goals to make sure your client base can pay those bills. But regardless of how hard you work to make sure receivables cover expenses, it won't do you any good if your invoice for that hard work sits on your client's desk, for weeks or even months.
Fortunately, there's a very simple solution for making sure that you receive payment for your services ON THE VERY SAME DAY YOU GENERATE YOUR INVOICE.
A Factoring Company can purchase your receivables.
Once a month, or more frequently if you wish, you can email or fax a copy of each of your invoices directly to your factoring company. On the same day, the factoring company will deposit up to 85% or more of the total amount of your invoices directly into your bank account.
Then, once your client delivers payment to your factoring company, you will receive the remaining 15% of your invoice, minus the fee charged by the factoring company. The fees will vary depending on when payment was received. Fees can range from between 1.2% for payments received within 30 days to 1.6% for invoices left outstanding for longer than 90 days.
I believe these fees are well justified, just so I could know at the start of each month, EXACTLY how much money I'll be receiving and EXACTLY on what date!
It's also great not having to deal with making collection calls.
If a client is slow in paying an invoice, the factoring company acts on your behalf as your outsourced "receivables department". They will make the initial collection attempts, and they will typically do it in a very professional and effective manner.
If an invoice ultimately goes unpaid, it becomes the responsibility of the computer consultant to repurchase the invoice from the factoring company and find a resolution with the client independently.
Another great benefit of factoring receivables is the ability to generate additional income outside of the regular, monthly billing cycle.
For my small business clients, my primary service is a Proactive Maintenance Plan, for which I charge a flat, monthly fee. For this fee, I provide round-the-clock network monitoring and remote computer support. These receivables are generally invoiced for and collected on or around the first of each month.
But very often, I'll make recommendations for new projects that won't fall under the scope of the regular, monthly maintenance plan. For example, installing a new firewall.
This project would be billed in addition to the regular, flat monthly fee. If installation of the firewall is completed to the client's satisfaction on the 15th of the month, an invoice for the project can be created on the 15th, submitted to the factoring company, and be funded to my bank account all on the same day.
Having consistent and reliable cash-flow is critical to the survival and growth of any business. Especially to an independent consultant or young Managed Service Provider that’s just starting out, without substantial capital sitting in the bank. Factoring receivables can help provide the financial stability necessary to sustain and grow your business.
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Robert Peretson is the founder of Perry Consulting, a New York based MSP, who's been providing IT Support to many of the city's most progressive and prestigious small businesses since 1996. Robert is also the editor of http://SuccessfulComputerConsulting.com, a website dedicated to helping growing MSPs to succeed through proper business development practices and proven IT Marketing strategies.
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