When invoices go out late, in batches or whenever someone remembers, a buyer's accountant can't easily prove which revenue recurs, which month it belongs to or what normal working capital looks like. Each gap tends to become a cautious adjustment, a longer due diligence list or a shortfall at completion. Buyers usually test the last twelve months, so start the clean-up 18 to 24 months before you expect to sell and let the new habits run for a full year.
In this article
The short version
- Late, batched or catch-up invoices put revenue in the wrong month, leave lines that can't be classified as recurring, and make month-end receivables swing.
- If £8,000 a month of recurring licence charges sits in irregular catch-up invoices, a cautious accountant may leave £96,000 a year uncounted as repeatable.
- Start 24 to 18 months out with a contract register and nominal codes, then bill every recurring charge on a fixed date and move recurring clients to direct debit.
- Reconcile seat counts before every billing run, since Microsoft lets partners reduce licence subscriptions only in the first seven days of a term.
- In the final six months keep billing exactly as it is, because a new system, new terms or a sudden debt push all show up in the numbers being measured.
Where ad hoc invoicing shows up in due diligence
In most MSPs the managed service fees go out on time. The irregular billing is everything around them: projects invoiced when someone gets round to it, hardware billed when the supplier's invoice turns up, and licence changes picked up a month or two late as one line reading "licence adjustment". You know what each of those was, but a buyer only has the records to go on.
It causes trouble in three places. Work done in March but billed in May lands in the wrong month, or the wrong year. Lines described as "IT services" or "adjustment" can't be classified, so they're likely to be treated as one-off. And project invoices raised in lumps make month-end receivables swing, so the working capital peg, usually a twelve-month average, depends on which months happened to include a batch. A completion date that falls in a low month can leave you short of the peg, and the shortfall normally comes off the price.
Classification usually costs the most. Say your managed service fees are £60,000 a month, and a further £8,000 a month of genuinely recurring licence charges is buried in irregular catch-up invoices. A cautious accountant may only credit the £60,000 as recurring, leaving £96,000 a year of repeat revenue that the buyer doesn't count as repeatable.
A clean-up plan, 24 months out
The aim is a twelve-month reference period in which your billing looks the way the business actually runs.
| Months before sale | What to do |
|---|---|
| 24 to 18 | List every client, contract, service and price, and check each against what you're billing. Fix missing or expired contracts. Set up nominal codes that separate managed services, projects, hardware and licence resale, and stop using catch-all lines. |
| 18 to 12 | Bill every recurring charge, including seat changes, on a fixed date each month. Invoice projects within days of sign-off and hardware on delivery. Move recurring clients to direct debit. Write a credit note policy. |
| 12 to 6 | Review aged receivables monthly and resolve or write off disputed balances. Keep a deferred income schedule for anything billed in advance and a list of supplier commitments with end dates. |
| 6 to 0 | Keep billing exactly as it is. Prepare the invoice export, contract register and month-end aged receivables for the data room. |
The first six months are paperwork, and the contract register does the most good. It answers more due diligence questions than anything else on the list, and it usually turns up errors in both directions: clients undercharged since a price rise and services still billed after they were cancelled.
Habits change in the middle year, and that's the part most likely to slip in a busy month. It gets easier if the routine runs without anyone remembering it. Adfin collects recurring fees by direct debit every month, including amounts that change with seat counts under one mandate, and can send a card or pay by bank link for project and hardware invoices. Every payment is reconciled to its invoice in Xero or QuickBooks, so the invoice-to-cash trail a buyer will test builds itself as you go.
If you're already inside 18 months, the plan is still worth doing. Expect the accountant to see two billing patterns and to ask about the change.
Licence and seat changes
Licence resale is usually the least regular billing in an MSP, and the part a buyer will read against your supplier contracts. Microsoft's New Commerce Experience lets partners reduce or cancel licence-based subscriptions only within the first seven days of a term. After that, an annual commitment is owed in full, whether it's billed upfront or monthly.
Picture a client who adds ten seats in April. You buy them on an annual term that day, but they don't reach the client's invoice until June, and in September the client wants to drop back. The accountant sees revenue in the wrong month, a price that doesn't obviously match the contract, and a commitment that outlasts what the client is paying for.
Three routines fix most of it: reconcile seat counts between your distributor portal and client invoices before every billing run, make sure contracts say what happens to annual licences if a client reduces seats mid-term, and keep a schedule of every annual commitment and its end date. Direct debit copes with the changing amounts, provided clients get advance notice, normally 10 working days under the Direct Debit Guarantee unless you've agreed another period.
What to leave alone in the final six months
Close to a sale, keep things as they are. A new billing system, new payment terms or a mass change in how clients pay all show up as a change in the numbers being measured, and each gives the buyer something new to question. If something needs fixing late, talk to your corporate finance adviser first. Some problems are better disclosed than fixed mid-process.
The same goes for debt collection. A sudden push to clear old debts in the month before completion distorts working capital, and an experienced accountant will spot it, while steady chasing all along looks like normal business. Adfin's Customer Agents can chase overdue invoices over email, SMS or WhatsApp on a schedule you set, adapting timing and channel to each client within rules you approve, so the aged debt report you hand over has a year of consistent follow-up behind it.
Common questions
How far in advance should I tidy up billing before selling my MSP? Ideally 18 to 24 months, so the changes are made and have a full twelve months of clean records behind them by completion.
Does ad hoc invoicing affect my EBITDA? Not directly, because the revenue is the same whenever it's billed. It affects how much of that revenue a buyer can verify as recurring and which period it belongs to.
What is a working capital peg? The normal level of working capital the buyer expects at completion, usually a twelve-month average. Any shortfall against it normally reduces the price.
Will unbilled work count towards working capital at completion? Possibly, if timesheets and tickets clearly support it. Expect more caution than with an invoice the client has already received.
Should I change billing systems before a sale? Only if a full reference period on the new system will be in place before completion. Inside the last year, it adds a second pattern to the data.
Can direct debit handle variable MSP bills? Yes. One mandate can collect a different amount each month, so seat changes don't need a new mandate, as long as clients get advance notice.
Sources
- ICAEW Corporate Finance Faculty and Grant Thornton - Completion mechanisms: determining the final equity value in transactions (accurate as of September 2026) https://icaew.com/-/media/corporate/files/technical/corporate-finance/guidelines/icaew-completion-mechanisms-v2.ashx
- BDO USA - Net working capital is vital in M&A (accurate as of September 2026) https://www.bdo.com/insights/advisory/importance-of-net-working-capital-nwc-in-m-a
- Grant Thornton Switzerland - Understanding quality of earnings: a critical component of M&A due diligence (accurate as of September 2026) https://www.grantthornton.ch/en/insights/quality-of-earnings-in-ma-transactions/
- Microsoft Learn - New Commerce Experience cancellation policy (accurate as of September 2026) https://learn.microsoft.com/en-us/partner-center/customers/new-commerce-cancellation-policy
- Pay.UK (Direct Debit) - The Direct Debit Guarantee (accurate as of September 2026) https://www.directdebit.co.uk/direct-debit-explained/direct-debit-guarantee/
- Adfin - Next-generation direct debit (accurate as of September 2026) https://www.adfin.com/direct-debit-payments
