Recruitment companies losing millions in late payments

Nick Elvin

UK recruitment agencies are owed £6 billion in outstanding invoices, according to a study of data from Companies House carried out by finance provider Sonovate.

The research has revealed that over the last decade recruitment companies have faced an average of £314,991 in outstanding late payments each year.

The average start-up agency founded after 2013 is already owed in excess of £100,000 from clients. This figure rises in relation to the lifespan of the agency, with those running for ten years or more owed an average of £600,000.

Richard Prime, CEO of Sonovate said: “Cashflow is vital for the survival of small businesses, and as these figures demonstrate, it is stopped by neglectful clients exceeding their agreed repayment times. In contract recruitment the repayment window typically sits between 28 and 45 days, but in reality payment materialises between 45 and 60 days, if not longer.”

Recruitment agencies often turn to banks for invoice finance to bridge the gap between contractor and client payments. However, Prime said that banks only provide between 60-90% of invoice profit, and impose heavy restrictions including concentration limits and insist on all turnover agreements.

He added that businesses had to “change their position around unethical payments”, while banks needed to “do more to understand the unique requirements of the recruitment sector”.

“A culture of fear prevents small businesses from challenging large clients to pay on time – they don’t want to rock the boat and risk losing out on repeat business,” said Prime.

“And without any real regulations enforcing timely payment, many SMEs are left with inadequate finance solutions from banks to address the shortfall left from delayed invoice payments.”