Recruitment agencies at risk from their own growth

Recruitment Agencies At Risk From Their Own Growth

With Australian employment statistics setting new records, it's easy to think all is well for recruitment agencies, but many are being stunted by growth. Fortunately, a solution is readily available – Debtor Finance.

Australian recruitment agencies have a difficult job on their hands, but it looks to be one they're taking well within their stride.

For the fourth month in a row, real unemployment in Australia fell in June, with 11,563,000 Australians now employed, according to Roy Morgan Research - a record high, the researchers said.

Recruitment agencies clearly have a substantial role in making this positive statistic a reality, often working in niche industries to get full- and part-time employees into suitable positions, as well as helping contractors find work.

However, success can rather paradoxically destabilise recruiters, and they tend to struggle the more people they have on their books. That's because agencies have to pay their temporary staff soon, or even immediately, after the placement begins, whereas their clients tend to have 30-day end-of-month payment terms for their invoices.

Slow invoices quickly adding up

Dun and Bradstreet's (D&B) Trade Payments Analysis showed that it took an average 50.4 days for Aussie businesses to pay their invoices during the first quarter of 2015. That's down on the 56 days recorded last year, but it's a nominal difference to many recruitment agencies. After all, they can't pay their staff late by even a day, though their clients will happily go beyond a 30-day payment term.

With expenses rolling out and invoices payments delayed, it quickly puts immense pressure on cash flow, and recruitment agencies may find themselves limited by the number of jobseekers they can feasibly take on.

Even so, recruiters are quite understandably reluctant to turn down business just to limit their outgoings, so many of them will turn to banks and other non-bank lenders to apply for a loan that will see them through until their invoices are paid.

It can be a costly carousel to get on, made worse by slow approval times, limited funding, high interest rates and the necessity of putting personal assets up as collateral. One loan is unlikely to solve the issue - with recurring late invoice payments, short-term loans will practically become part of the business model for many Australian recruitment agencies.

So how widespread is the issue? Invoice payments terms are actually being neglected by almost half of the businesses in Australia, according to D&B.

"Despite the improvement, 44 per cent of commercial invoices in Australia are still being paid late, which withholds significant amounts of money from the financial system and places financial strain on supply chains," he said.

Getting off the carousel

That's why many recruitment agencies - and businesses in general that rely on their invoices being paid in good time - regularly use debtor finance. By allowing a debtor finance provider to pay the majority of the balance of their outstanding invoices, recruiters have immediate income and steadier cash flow.

Invoice finance also generally removes the need for business owners to put up the company or their own personal assets as collateral. With a low maintenance Debtor Finance facility, a recruitment agency will not have to worry about growing too quickly, but instead focus on putting more people into employment.

To understand if debtor finance can help you, take a look at the criteria online, or call the experts at Classic Funding Group  on 1300 780 895 for one-on-one advice.