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Sector

Managed service providers and tech integrators

Onboarding a new client usually means buying hardware, committing to software licences and putting engineers on the job before the first monthly invoice is raised. The faster an MSP wins clients, the more of its own cash sits in onboarding ahead of the recurring revenue that eventually pays it back.

Tell us what's happening How money moves in this sector

How money moves

Why a quiet quarter for new business is often the easiest for cash

Each new client creates three commitments before recurring revenue catches up: hardware, engineer time and licences. Win several in the same quarter and those commitments stack up ahead of the invoices that eventually pay them back.

HardwareBought for the client

  1. Contract signed
  2. Devices and network kit bought
  3. Cost sits with the MSP until billing starts

Engineer timeSpent on onboarding

  1. Migration and setup work
  2. Payroll runs on its usual date
  3. No client invoice for this work yet

LicencesCommitted for the term

  1. Annual term licences bought for the client
  2. Cancellable only in the first seven days
  3. The partner pays for the term

Client billingWhere the three meet

  1. Service goes live
  2. First monthly invoice
  3. Recurring income starts paying the onboarding back

The squeeze follows the pace of new wins more than the size of the client base: three clients signed in one month means three sets of hardware, engineer time and licences before the first of their invoices is paid.

Microsoft's partner terms are explicit about that last lane. New commerce licence subscriptions can be cancelled for a prorated refund only within seven days of purchase, and the partner is responsible for payment even if the customer can't or won't pay (Microsoft Partner Center: new commerce cancellation policy).

Where the sector gets misread

What a generalist lender sees, and what's actually happening

What a generalist lender readsWhat is actually happening

Strong MRR growth as a healthy business

Each new client adds onboarding spend before it adds income, so fast MRR growth can sit right alongside a working-capital squeeze.

The same gap as SaaS deferred revenue

A SaaS gap comes from recognising cash already collected over time. An MSP's gap is real money spent on hardware, licences and people before billing starts.

Licence costs as a variable cost

Annual term licences are a commitment the MSP carries for the term, so a client leaving early doesn't remove the cost straight away.

The measure that matters

Onboarding-to-billing lag, not MRR growth

How long a new client takes to go from signed contract to first paid invoice, and how much is spent in between, says more about the working-capital need than MRR growth does. Two MSPs with identical growth can need very different facilities.

The second number worth knowing is how much of the licence base is on annual commitments rather than monthly terms, because that decides how much cost stays behind if a client leaves.

Where finance fits

Usually a credit line sized to the onboarding cycle

Your situationUsually fitsNot this
Working capital stretched by fast client growthA credit line sized around the onboarding cycleA one-off term loan for a recurring, growth-linked gap
A large hardware rollout for one significant new clientEquipment or leasing finance for that hardware, or a term loanA cash-flow loan sized on trailing MRR alone
Own software product alongside managed servicesAlso read SaaS & recurring revenue for the product sideTreating the whole business as one mechanism
The onboarding gap is fundable. A client on a month's notice sitting on top of annual licences is a contract problem, and no facility changes that.

Where that mismatch is the real problem, aligning client contract terms with licence commitment terms usually does more than any facility.

Sources

Where these points come from

Talk it through

Need another perspective?

Describe where things stand in a sentence or two: who pays, how, and where the gap sits. We'll tell you whether it's something we can help with. There's no charge for this.

Your enquiry is read by a person at Established Finance, not a call centre or an automated queue. We use it only to work out what's likely to fit and reply to you. We don't share your details with anyone else unless we introduce you to a specialist partner, and only with your agreement at that point. Sending this doesn't appoint anyone or create a professional engagement, and there's no obligation at any stage. See our privacy policy.

What happens next

  1. A person on our team reads it against how businesses in this sector are actually paid.
  2. If we can help, we introduce you to a specialist partner we have vetted and tell you who they are.
  3. No charge and no obligation at any point. You decide whether to go further.
Adam Parker

Adam Parker

Founder of Muswell Rose Consulting Ltd, which trades as Established Finance · former Managing Director of Penny, an invoice finance business, with 15+ years across mortgages, commercial finance and fintech lending.

Last updated:

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What information do I need?

To start, just a description of what’s actually happening in the business. If it progresses, the specialist partner will ask for the usual things: recent accounts, a sense of turnover and trading history, and details of the specific need.