Once a recruitment agency makes a placement, the risk to the agency is whether the client will make payment within the terms agreed. When making a permanent placement, there is less financial reliance on whether the client pays as there has been little outlay made prior to payment being made.
However, if the agency makes contract and/or temporary placements, the agency will normally have paid the candidate before the client has made payment which leaves a gap in the finances.
REDUCE THE RISK
The way to reduce this risk to the company is to have some kind of credit protection policy for the company which will insure the invoices to the client and reimburse the agency should there be a claim. Credit protection is only required for contract and/or temporary invoices to the private sector as Government based debt cannot be covered by an insurer as it is not deemed to be a risk.
BAD DEBT PROTECTION
Most recruitment agencies will use a finance company to fund their contract and/or temporary placements, either via a Pay-And-Bill solution or an invoice finance company who will provide bad debt protection on those clients up to an approved credit limit.
This bad debt protection will only cover the debt should the client go bust i.e. go into administration or liquidation but will not cover the debt should the client refuse to pay the invoice or let the debt go overdue.
If the agency however, opted to get its own credit insurance policy from a credit insurer or via a broker, this would not only cover if the client went bust but also on can’t pay/won’t pay scenarios. This added protection for the agency will mean that should a client refuse to pay valid invoices or say they do not have the funds, then the agency can make a claim on their policy and still be paid prior to the client going bust. This process will also normally be handled by the credit insurer to maximise the likelihood of a payout on the policy.
SELF FUNDING AGENCIES
If an agency is self-funding their contract and/or temporary placements in a bid to save funding and interest costs from a funder, then they will often overlook taking out credit insurance which means that if the client does go bust or refuses to pay then this will mean the agency will lose their own personal funds.
HOW WE CAN HELP
MAYACHI LTD can help recruitment agencies evaluate the risk on their debtor book and see whether the current credit protection on their invoices is adequate for the policy being provided. MAYACHI LTD has relationships with providers of credit protection policies to help arrange the best cover for the agencies debtor book.