Recruitment agencies face post-Covid cash flow issues
There are signs that green shoots are emerging for the recruitment industry, but agencies are being warned to prepare for potential cash flow issues.
According to research by leading jobs website Monster, those in the recruitment industry are generally optimistic about the year ahead. Conducted among 3,100 recruiters and HR professionals, the survey found that most recruiters are optimistic with 65% planning to hire in 2021.
A third (35%) said they will be hiring to fill job vacancies, while over 30% will be expanding to fill new job requirements.
However, an upturn in the jobs market might see a flurry of vacancies being advertised, but this will not result in immediate revenue for struggling recruitment businesses.
“The problem facing every recruitment agency is the time it takes between advertising for a role and actually getting paid,” says Wendy Allen, of PCS Credit Management.
“Every business faces unavoidable overheads, and that is also true for recruitment companies. For example, they are responsible for paying any temporary staff on their books. Plus they need to maintain a certain number of staff to ensure they continue to offer a reliable and efficient service, while having the capacity to attract new business.”
Common cash flow problems
According to Wendy, the recruitment agencies facing the biggest risk tend to be start-ups or smaller businesses. These rely on regular payments from clients in order to stay solvent and it can be difficult to grow sufficient working capital.
Building up a lot of temporary workers on their books can ensure regular income, but it also exposes them to cash flow risks as often these staff require weekly payments.
“If you are a recruitment business with cash-flow issues, you could be putting your entire business at risk,” adds Wendy. “For owners of small firms it can feel like they are living hand to mouth, which can cause a lot of stress and anxiety.”
How to take control
While taking out loans such as asset finance or invoice factoring might be an option, this simply exposes the business to more risk and may not be an option for start-ups. So what can recruitment agencies do to take a tighter grip on their cash flow?
“Whether businesses are in profit or in crisis mode, they should always look closely at their credit management,” says Wendy. “Far from being a reactive process, credit control can predict pressure points and systems can be adapted to lessen the problem.
“Don’t spend all your time chasing debt or worrying about the bank balance, robust credit control procedures can take the strain and highlight the most promising customers, avoiding payment problems further down the line.”
Whether you are a new or established recruitment agency, seek professional advice on credit management can transform your business finances. To find out more, please call PCS Credit Management on 0161 941 7511 or visit pcscredit.co.uk.