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Two-thirds of Recruitment Agencies Have Profits Locked Up in Late Invoices
Grow your agency in 2017 with more cash flowTeam Waddle
It’s a sobering truth that corporates will delay invoice payments to boost their own working capital
This leaves recruitment agencies with little room to negotiate.
SEE ALSO: Payroll funding gets wages paid on time, here’s how
Pressuring customers over late payments can damage your relationship and put future business at risk; however, having large cash gaps is not a sustainable model for growth. If agencies want to run contract placements, they’ll need secure working capital behind them to bridge the cash gap.
Business is better when it’s predictable- that’s why agencies need finance that’s not conditional on whether a client pays on time.
Remove late payments, find out more.
It’s well known that even when terms are agreed, candidates don’t always start on time. Coupled with having to fund contractor payments as soon as placements begin, you will either need to:
- Have a strong balance sheet to fund contractor weekly payments/super
- Negotiate payments terms (not likely with large solid corporates)
- Raise capital or sell expensive equity in your business
- Fund it personally (risk the family home, etc)
- Put in place a working capital line of credit to bridge the gaps
What are the implications of a slowdown in payments?
If you have aspirations of growth- or are experiencing a slight slowdown in business – the financial support will usually come from your own back pocket, while your profits are tied up in receivables from customers.
Here’s a typical overview of your outgoings that are affected:
- Commission and incentives
- Property rent
- New Hires
- Back office administration
- Insurance and debt collection
- Marketing/travel expenses
- Expansion plans, events, etc.
Your cash flow might be manageable, but if you can’t predict your payments with complete certainty, you can’t safeguard your agency from a rainy day.
The outdated solution for recruitment financing
Invoice discounting and invoice factoring sourced from banks and non-bank alternatives have had a worthy place in the market for the last twenty or so years.
The finance was restrictive, ring-fenced, and heavily laden with hidden administrative costs. It catered to many industries, withheld large sums of funds each month, and ultimately, didn’t meet the needs of recruitment firms.
One of the largest benefits traditional financiers have provided is financial freedom, and the predictability that comes from accessing funds locked in invoices, giving agencies a clear path to scale.
You can’t efficiently do either of these if your business is waiting months to get paid, while funding the gap out of your own float of funds.
The modern alternative
Agencies that demand efficiencies and utilise cloud accounting can now reap the benefits of new invoice financing software that integrates without disruption.
New services such as Waddle completely automate a traditionally clunky, expensive process by linking in with your invoicing software.
Raising an invoice for a placement automatically updates your line of credit, providing immediate access to funding. With unconditional access to the money owed from your invoices, the cash flow concerns in contract recruitment are simply removed.