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A major threat to a growing MSP is poor accounting practices. All it takes is a dishonest employee or an honest miscalculation to impact your bottom line.
When it comes to accounting and finances, you need the peace of mind that comes with knowing that your business is in good financial standing. Continue reading
Today’s managed service providers offer a variety of services. Along with these services comes the dilemma of how to invoice and bill for them. MSP invoicing and billing mechanisms can easily become complex.
In the early days of MSPs, the billing model was much simpler. Customers would request support, technicians performed the work, and you’d get the bill. The billing process was more of a general all-in-one-type break/fix model.
Now there are several models MSPs use to charge customers. For example, per-device pricing, per-user pricing, tiered pricing, consumption-based pricing, value-based pricing, flat-rate pricing, and à la carte pricing.
Further reading MSP Pricing: The Startup Guide
But it’s not just the pricing models that pose a challenge to fast and timely billing. There are several factors that go into this. Making sure accurate time tracking is in place for each client, updates to the billable work being performed, inventory updates (via RMM), and other factors need to be addressed and accounted for.
Let’s review the methods and best practices for MSP billing and take a brief look at some software applications you can use.
We start off with manual billing. While this method works, it eats up your time and does not scale well. If you are a small MSP with a small client base, this might make sense; however, as you grow, it won’t grow with you.
Nevertheless, let’s take a look at what billing your clients manually looks like at the end of the month or billing cycle:
- First you need to calculate the costs of your services, such as backup, antivirus services, workstation patching, server and network monitoring, and any other services offered to the client.
- Next, you need to export your RMM reports to see what billable work has been done during the billable period.
- Now, you need to log into your ticketing system and review all the staff’s time entries. Typically, the direct time entries are taken from the ticket and put on the invoice. A manual check is needed for accuracy and the time is then copy/pasted to the invoice.
- If all the information is accurate, you need to add up the cost of services along with the billable work in order to forward it to your client for billing purposes.
As you can see, this is a routine and dull process. If any one of the time entries has errors or issues, your billing process stalls.
Now, imagine doing this each month for ten clients. Or tens of clients.
This manual billing ritual isn’t just time-consuming, because you have to pull data about the billable work from multiple sources, but it’s error-prone as well.
For instance, if you don’t use automated time-tracking, your technicians could lose some valuable billable time.
Automated billing requires additional upfront work and configuration but, in the long run, it is easier to manage, and producing invoices for your customers becomes seamless.
The first step in the process is to set up your client inside your MSP professional services automation (PSA) system and list all the services which they are subscribed to in their contract. This covers the standard service offerings as well as any additional add-on services.
Next, you need to integrate your PSA solution with your RMM tool. Doing so ensures your PSA solution automatically syncs the quantity of services in a customer contract (for example, the number of workstations on a site) with your RMM.
Your PSA solution can read the time spent on the tickets for the client during the billing period and add up all the time. An advanced PSA solution can also come with automated ticket time-tracking, which means ticket time gets automatically logged as soon as an engineer picks up a ticket.
After automatically summing up time entries, your PSA will then let you run your invoices and export them to your accounting software for accounting purposes.
All this happens within a matter of minutes and the real benefit is that the entire process is relatively error-free.
MSP Billing Best Practices
Let’s review some best practices that will make your MSP billing more consistent and successful.
Accurate and Detailed Invoicing
Accurate invoicing is vital in order to build trust with your customers. If you get billing right, they’ll have confidence in the quality of your services. The easiest way to ensure accurate, detailed invoicing is to automate your billing process. When your technicians’ reports and your help-desk processes are fully integrated with your billing platform, you can deliver clarity for every item listed on your invoices.
If a customer has a question about a particular service item, you can easily track the charge and explain the details. In fact, by providing a high level of detail about all your services, you’ll be helping customers understand exactly what you’re doing in their IT environment—and how you benefit their business. These conversations can actually be a way of educating a customer on the range of services you offer, and provide the opportunity to potentially upsell and cross-sell additional options.
At the end of the day, this is what customers want. Someone who is not technical can pick up an invoice and understand all the work being performed.
Timely invoices give your customers certainty in tracking costs and planning expenses. Prompt billing is as good for your customers as it is for you. Late invoices, on the other hand, can feel like unexpected expenses—and that’s a negative customer experience. There are times when, if the invoice is too late, customers will forget about the work performed, which may make them reluctant to pay the invoice.
How do you get your invoices out as quickly as possible? Integrate your ticketing, help-desk and invoicing tools under a single platform and eliminate manual steps. This allows you to generate and send invoices faster and more efficiently. And the faster your customers get their invoices, the sooner you get paid.
Each customer is different, so they each have different billing needs. This means your invoicing approach should be flexible. You want to generate easy-to-understand invoices that are as simple or as detailed as required for your various billing models—hourly rate, retainer, or fully managed services. By not giving customers a one-size-fits-all invoice, you’ll be demonstrating that you truly understand their business needs.
You’d be surprised how far these simple, small matters impact your overall business. By implementing these, you’ll generate more business and provide better customer service.
I’ve referenced professional services automation and other systems in this article. You may wonder what specific software applications you can use to improve your MSP billing processes.
- The PSA is the brain of an MSP business. These platforms typically collect all the information needed for billing and can generate invoices based on recurring contracts, as well as support and hardware-procurement costs. No manual calculations or accounting requirements are needed. MSPs can create a seamless collection process by integrating ConnectWise, Autotask, and other PSAs with MSP-friendly accounting and secure payment platforms.
- An accounting package is also necessary. These systems no longer just calculate the basic costs but, through various integrations with other MSP tools, share key information to help automate billing and collection. QuickBooks, Microsoft Dynamics GP, and Xero are excellent choices for MSPs’ financial tools. These systems can automatically pay invoices based on a one-time fee or recurring charges, and then reconcile those details across integrated solutions. Today’s online packages also provide owners, accountants, and other decision makers with on-demand reporting options, so they can monitor business metrics and alter collection strategies as needed.
- Next, a secure payment platform is essential. Generating invoices is the easy part; getting your clients to pay those bills in a timely fashion is considerably harder. Collection policies only go so far. SMBs need clear direction, including a firm time window, for paying their managed services bills, and automation to ensure this mindless task happens each month. Platforms like ConnectBooster give your customers the ability to manage their credit card and ACH information and access current and past invoices in a secure online portal. Integrations with PSA and accounting tools ensure everything updates across all your systems in real time, saving you a lot of time and headaches while strengthening your MSP business’s cash flow.
Further reading Software for MSP Finance and Accounting Management
As you can see, automation can alleviate much of the pain associated with invoicing. Some of the biggest time-wasting processes in an MSP business involve billing. From collecting information and generating invoices to accepting credit card payments days, weeks, or even months later, the payroll costs some companies incur to get paid for the services they deliver can be astronomical.
By implementing these systems and best practices, your MSP business will effortlessly deliver quality invoices and get paid in a timely manner.
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