By Richard Prime, CEO of Sonovate
Agreement employment is one of the fastest growing locations in recruitment. It’s now worth 26 billion in just the UK – and unsurprisingly, it’s attracting a great deal of recruitment companies who want a piece of the contract pie.
However it’s not simply goodgreat for the UK economy; it’s great benefits recruiters. By taking the agreement recruitment path, businesses have improved financial stability, success, and can more effectively service their customers’ needs. All well and excellent: but how can you fund contract recruitment when clients pay you monthly and you needhave to pay your contractors weekly?
In the past, numerous recruitment companies went to the banks to plug this gap and protect the finance they require. But this presents more problems than it actually fixes. These traditional lenders concern prolonged agreements which consist of reams and reams of small print – and all too typicallyfrequently it is unbelievably challenging to see the long-lasting impacts of these terms on company.
The easy commercial fact is that banks aren’t created to money the contract books of recruitment agencies – they weren’t set up with that intention, and so recruiters using them are getting an impersonal, off-the-shelf service. These banks don’t have industry knowledge, nor do they understand how our financing requirements change from other markets. To take an example, many financing agreements from banks consist of terms that restrict the level of business a firm can do with any one customer. This is knowncalled concentration, and for banks it makes good sense: for financiers a high level of concentration implies a higher risk associated with the cashthe cash lent to a business. For an agency with a more focused contractor-client ratio, this eventually implies that less cash will be advanced by the bank, and the company will have less chance to grow.
Unfortunately, this is just among the inflexible procedures put in location by conventional lenders that can capture a recruitment firm out. Another term frequently found in the littlefine print is that many loan providers will hold back up to 40 percent of a firm’s earnings. For a start-up or small recruitment business, this can spell catastrophe – it positions enormous restrictions on cashflow and a business’s capability to scale. Comparable fees in location are late-payment charges, which mean that a firm is held accountabledelegated economically supporting a client who pays late. Ancillary charges for any services which are considered from the agreement terms, re-factoring charges incurred by late invoices, and discount rate charges as interest on cash advances.
At the point of payment these fees might seem like fairly little, however thinkconsider what that cash could do for company when it’s all includedaccumulated. It might indicate more workplace areaworkplace, much better computers or software application, and even a few brand-new hires to actually get your business moving onwards and upwards. It’s the companies that truly suffer by ignoring the caution indicators that are hidden in the small print.
Couple these inflexible, business-damaging treatments with the strict all-turnover contract put in place by a lot of conventional loan providers, and the problems are compounded. These contracts mean that all the finance you needhave to run contractors has to come from the exact same loan provider, or you get absolutely nothing. And it truly is all or absolutely nothing: if you desirewish to finance one client with invoice factoring from a various bank at better rates, you can’t. This provides lenders an obvious advantage, locking their company in over the wholethe entire term of an agreement, which is normally a minimum of 12 months.
All this indicates that it is vital for recruiters to read the small print of their financing agreements. Frequently exactly what you think you’re signing up to is extremely various to what you’re in fact committing yourself to. When it pertains to start-up recruitment companies, these terms can be exceptionally harmful and truly prohibit development. After all, where will your brand-new company be in a year’s time? A lot can change in a year – your business might well need a really various finance bundle to the one you signed up for. Dig deeper than the marketing speak, look for flexibility and seelook out for those covert charges when you’re searching for the best finance for your recruitment firm. Agreement recruitment is extremely rewarding for the market and agencies need to not be penalized for growing their professional book, so don’t be!