It’s a sobering truth that companies will delay invoice payments to boost their own working capital. This leaves recruitment agencies with little room to negotiate.Pressuring customers over late payments can damage your relationships and put the future business at risk; however, having large cash gaps is not a sustainable model for growth and it negatively impacts your profit potential.
When agencies make contract placements, they’ll need to secure working capital to bridge the cash gap which is why they need a finance solution that’s not dependant on whether or not a client pays on time. The magnitude to which agencies are held to ransom by late invoices is highlighted by the fact that so many remain unsettled outside of the agreed payment terms.
If you have growth aspirations or are experiencing a slowdown in business, the financial support will usually come from your own back pocket, while your profits are tied up in receivables from customers. 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.
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
Historically, recruitment companies looking for a line of credit would look to invoice discounting and invoice factoring- both considered obsolete by modern standards as new technology has shaken up the financial ecosystem to deliver much better solutions
‘Old-school’ 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 it didn’t meet the needs of recruitment firms.
So what's the modern alternative?
Agencies that demand greater efficiencies and who already utilise cloud accounting can now reap the benefits of Waddle’s modern invoice financing software that integrates without disruption to existing workflows. Waddle completely automates a traditionally clunky, expensive process by connecting with your cloud accounting software. It's easy to connect in minutes and to receive an offer with a few mouse clicks. It'll also save a lot of administration time that was previously spent managing the old manual processes of uploading invoices. In an era where we have cloud-enable software, it makes no sense whatsoever to devote time to outdated processes. All that time-saving translates to leaner, cost-effective finance that works for both supplier and customer- a true win-win outcome.
Making new job placements?
Raising an invoice for a placement automatically updates your line of credit, providing immediate access to funding, and with unconditional access to the money owed from your invoices. Your cash flow concerns in contract recruitment are simply removed.