Agencies must prepare themselves for interest rate rise

Jo Faragher

Newspaper stories often focus on the impact any future interest rate rise might have on homeowners.

Dramatic tales of families facing destitution, or worse, losing their home, thanks to a small rise in the base rate fill the personal finance pages.

But something that attracts less coverage is how interest rates will impact businesses.

Recruitment’s lifeblood is a healthy cashflow, and it’s typical for agencies to use factoring or invoice financing services to help pay their temps and keep that flow of money moving.

Of course, doing this costs money, and even a small rise in the interest rate – likely to take place at some point in 2015 – could mean their monthly outgoings go up considerably, despite the fact that clients are likely to be paying the same rates.

According to Keith Faulkner, chair of tempo, the temporary recruitment alliance, a rise in interest could even see smaller agencies struggle to stay in business.

“The increased cost of borrowing may cause a downward pressure on margins, having a knock on effect which, in some cases, could result in decreased pay rates for contract workers,” he has said.

Just as the economy is beginning to look rosier again, ambitious young agencies could receive the financial equivalent of a burst tyre – stopping them in their tracks or at the very least hampering their ability to take on larger clients because they simply can’t finance that level of service.

Along with potential interest rate rises (which Faulkner predicts will be towards the end of 2015), the outcome of next year’s general election could affect business confidence and also staffing.

Caution forces employers to look to temporary and contract staff, but while this means lively business for recruiters in this area, rising interest rates means that borrowing money to pay these staff is likely to get more expensive.

So while there’s nothing wrong with having confidence in the future – firms are hiring again after all – next year could offer some unwanted surprises, so it pays to be prepared.