Recruitment agencies are always good at generating clients, registering candidates, and making placements, but when it comes to managing the company cashflow, it can be a minefield to the Directors. Understanding when clients will make payments, when to pay suppliers and how much is due to HMRC can make understanding the company cashflow is a complex task. Here are some cashflow tips your recruitment agency needs to know:
PUT YOUR HMRC LIABILITIES IN A SEPARATE BANK ACCOUNT
Understanding how much of the funds in the company bank account are available to be spent can be very confusing especially when there is one bank account. At any one time, there could be funds due to HMRC for PAYE, VAT and Corporation Tax plus money owed to contractors and suppliers. To mitigate the risk of potentially spending funds due to HMRC, it’s a good idea to put the PAYE, VAT and Corporation Tax in a separate bank account until the funds are due. This will make it clear that most of the funds in the company account can be spent and HMRC is always covered and is one of the biggest cashflow tips for recruitment agencies.
OUTSOURCE AS MANY SERVICES AS POSSIBLE
As clients are using recruitment agencies to outsource their staffing needs, why shouldn’t an agency follow suit and consider outsourcing as many processes as possible? This should include back office and accounts (we know a good Non-Exec FD!), marketing, IT and HR. Using internal staff or even the director trying to do some of these tasks themselves is a waste of time and money and could end up costing more in the long run.
ENSURE A SALARY AND EXPENSES ARE PROCESSED EACH MONTH
Even if an agency does not have enough cash in the business to pay the Directors salary or reimburse them for company expenses paid out for personally, these should still be processed through the books and credited to the Directors Loan account. This allows the Directors to use their personal tax allowances on their salary, reclaim VAT on these expenses and, when there is sufficient cashflow the Director can take these funds tax-free as they have already been accounted for. Make sure you download our guide to allowable expenses to make sure you’re not out of pocket – get yours here.
USE A CHARGE CARD TO EXTEND YOUR CREDIT
Getting a business charge card (a credit card where the balance is paid via the business bank account the following month) such as a Business AMEX can allow an agency to pay for expenses and bills and have some grace before it needs to be paid off. These kinds of cards also have benefits such as airmiles, cashback, etc. which can be used by the Directors.
UNDERSTAND YOUR MANAGEMENT ACCOUNTS
Receiving regular management accounts is the best way to manage the company cashflow, especially when the director understands how to read the balance sheet. This page in the management accounts shows the amounts owed to the company, the amounts due out and the amount of profit remaining in the company. #This can help directors decide on how much and when they can take some funds from the business.
USE INVOICE FINANCE TO PAY CANDIDATES
Many recruitment agencies decide to use company cashflow to pay contractors instead of using some kind of invoice finance model. This could put undue pressure on the company cashflow should a client delay payment or if the contractor book grows quickly. Using cheap funds from an invoice finance provider is a better way to fund these payments and free up the bank account to pay internal staff and the directors.
CASHFLOW TIPS FOR RECRUITMENT AGENCIES
We understand that cashflow can be a concern for any recruitment agency and it can be a distraction from making placements if there is a strain on the company funds. MAYACHI works with the agency directors to ensure that they understand their financial responsibilities and how to use their management accounts to plan their cash incomings and outgoings of the business.
For more advice and helpful tips, book your free 2-hour consultation call today where we’ll take you through the complexities of the company accounts.
