Stand up to late payers

Jo Faragher

Many people believe that setting up in recruitment is easy. All you need are some good contacts, a couple of reliable clients and the ability to source candidates.

But while this is to a certain extent true, one of the major obstacles to growth as a start-up in this industry is late payment.

According to an analysis of data from Companies House by financing company Sonovate, recruitment agencies in the UK are owed some £6 billion in outstanding invoices.

It found that, over the last decade, recruitment companies have totted up more than £300,000 a year in outstanding payments. Start-ups founded since 2013 are already owed more than £100,000.

One of the key issues is that the fate of many recruiters – the majority of whom are small businesses – lies in the accounting practices of much larger organisations.

So if a niche agency signs into a major managed service deal, for example, it has to take on the payment terms adopted by the managing agency. If it’s working for another agency reporting to that managing agency, it may have to wait until the middle agency is paid before it can chase its own invoice.

The result? The small agency is left waiting anything up to 75 or 90 days before it can pay consultants or cover its costs.

The legislation has been changed with a view to protecting small business – with 60 days now the maximum timeframe to pay suppliers, but chasing up late payers is still time consuming and expensive. Some campaigners have called for it to be reduced further to 30 days, but this is unlikely to change anytime soon.

In the meantime, agencies need to get tough with late paying clients or partners. Establish at contract stage what the payment terms are going to be, and don’t be tempted to agree to something that will damage your business just to secure a contract.

After all, without the ability to pay your consultants and cover your business fees, you’re not going to be in business for much longer.