Getting paid for your services shouldn’t be a headache. Yet, for agencies it often is.
Contract recruitment accounts for almost 91% of the industry’s £35.1bn turnover, is growing its 1.9m candidate pool by 2% annually, and often offers far more lucrative returns for agencies.
However, a culture of late payments has created a needless barrier to growth among agencies placing contractors.
In 2014, late payments became so endemic that over £6bn was owed to recruitment agencies in outstanding invoices. Fast forward a few years and things have only gone from bad to worse.
The shortfall between paying contractors on a regular basis and receiving payment from clients at a later date, can trap agencies into a cycle of financial insecurity.
Even for those that commonly turn to invoice factoring, the funding to bridge the gap is only ever a limited solution.
Factoring providers buy your debt and advance a conditional amount against your client’s invoices, releasing the full amount only once your client has paid their invoice.
With the average debtor days (time before client pays) sitting at 56 days, it means agencies are kept from their profit for far too long.
How can an agency juggle their fixed overheads and budget for growth when they have to wait 56 days, and often far longer, to access their profit?
The answer is they can’t, or not with any real confidence, as they’re basically forecasting with their finger in the air.
It’s not contained to startups and small agencies either, as the larger companies will usually have a higher number of clients and contractors on their books. This means as the company scales so do the pressures of cash flow and the need to have working capital to hand.
The government’s answer
From April 2017 large companies and LLPs will be required to publish their payment practices and performance publicly twice a year.
Information over their payment terms and any changes made during their engagements, will in theory, provide agencies with an insight into those who are reliable payers.
Businesses that are also being kettled into signing the Prompt Payment Code, which penalises those that don’t pay within the agreed parameters, will more than likely just increase the length of their payment terms to protect their own cash flow.
The end result being that very little will change over when an agency is actually paid and that cash flow will continue to be interrupted.
So how do we remove the strain on cash flow when agencies are so reliant on repeat business from clients?
Removing cash flow concerns
The problem for recruitment agencies was not that they didn’t have the money, but, that they didn’t have the working capital to hand.
Sonovate changed that.
As a smarter alternative to the conditional lending terms in factoring, agencies now receive their profit from invoices without waiting on their clients to pay.
We understand that agencies need a reliable and fluid source of cash flow to grow with confidence, and when they grow, everyone profits.
The funding lines, refactoring costs, and concentration limits which have been woven into the vast majority of providers’ terms, have been removed from ours.
Choose who your fund, how much you fund, and access your unconditional profit within a week of an approved timesheet.