Recruiting Cashflow

By Tracy Ewen, Managing Director, IGF Invoice Finance

Recruitment firms, more so than with many other industries, can find themselves facing funding shortages that are based not on the volume of business completed, but simply on the nature of their transactions.

A large catalogue of clients, varying widely in size and management structure, means that receiving payments on time can be a lottery. To compound this, contracts which defer payment until the candidate has successfully completed their probationary period, leave firms with large gaps between service completion and money in the bank. Overall these challenges lead to an environment where companies must wait weeks or even months to access the funds that they are owed. The knock on effect of this being that they are held back from investing in the business and providing the capital to grow at the fastest rate the market allows.

In an attempt to avoid these delays, many business owners resort to expensive bank overdrafts to see them through or, worse still, the company credit card. When it comes to paying back the finance, business owners may find that what they thought was a good short-term solution, has actually weakened long term cashflow.

As recent research by Mazars (among others) has shown, this problem seems to be getting worse every year and it can definitely be a contributing factor to the number of start-ups and even established small firms that go under in the UK.

It is more important than ever for recruiters to make themselves aware of the different borrowing options available to them. There is no one-size-fits-all solution, so it’s important to look at all the possible routes to growth.

Here are my top tips for improving your cashflow:

1.     Plan, plan, plan!  Prepare cashflow projections for next year, next quarter and, if you’re on shaky ground, next week;

2.     The key to managing cashflow is to be aware of any problems as early and as accurately as possible.  Financial services providers are wary of borrowers who suddenly need to have money today;

3.     Finance problems can often be self-inflicted.  It seems obvious, but companies which send out incorrect invoices often find that their customers end up returning an invoice and requesting a new one;

4.     Protect yourself against bad debts. Bad debt protection cover provides clients with protection for up to 90% of any loss suffered by reason of the failure of a debtor to pay, owing to insolvency or protracted default;

5.     Balancing credit terms vs. cashflow needs is something many businesses struggle with.  Be sure to tell your potential customers upfront about your credit terms - before you provide your product or service;

6.     Don’t always associate higher sales with better cashflow.  If large portions of your sales are made on credit, when sales increase, your accounts receivable increase, not your cash.

The downturn is now in the past, and in the improving economy recruitment is a promising industry with the potential to achieve long term, fast, sustainable growth. Cashflow isn’t always something that tops the to-do list for owner managers pursuing more and bigger customers, but time invested in planning and protecting cashflow will establish a firm foundation from which growth can be achieved quickly and reliably.