When a recruitment agency is looking to make a placement, it is advisable to complete a credit check on the client to find out their financial viability before allowing the candidate on site.
This is particularly prevalent when making contracts or temporary placements as often the agency will need funding (often provided by Pay-And-Bill or Invoice Finance Companies) to pay the candidate before the client makes payment.
Running a simple credit check will give greater security that the client will make payment on the invoices raised and give an indication as to how many placements can be made before they hit the credit limit.
If the agency is using a Pay-And-Bill provider or an invoice finance company, it will often be insisted that there is some credit checks completed before funding is provided and should a client fail a credit check then this may mean that those invoices are not funded.
Even if a client fails a credit check, there are a number of steps that can be taken to still ensure that the placement goes through: –
- INFORM THE CLIENT ABOUT THEIR POOR CREDIT RATING
The first port of call should be to inform the client of their poor credit rating. The client will either be aware of the situation and will give an explanation or be completely unaware of the issue. By letting them know, it will show that you have done your due diligence on their company and could help them resolve the issue as well as ensure you make the placement.
- SEE IF THE CLIENT HAS UP TO DATE FINANCIALS THAT COULD REVERSE THE DECISION
Sometimes credit checks fail due to a decrease on their financials on their last set of submitted accounts. However, as year-end accounts are submitted 9 months after the year end, there could have been an increase in the company’s financials since then or they could have secured additional funding/investment. If the client is willing to provide up to date financial figures that can be provided to the credit checking company, then they may be able to revisit the credit rating.
- REDUCE THE PAYMENT TERMS
If the client cannot reverse the credit rating decision and the agency still wants to make the placements, then it is advisable to look at reducing the payment terms to reduce the time taken from when the payment is made to the candidate and when the client makes payment. It may be advisable to also reduce the notice period on the client and candidate contract should the agency need to end the contract due to the financial position getting worse.
- LOOK AT A PAYMENT IN ADVANCE SOLUTION
Another alternative would be to speak to the client about making payment in advance for any contract/temporary placement. This would involve raising pro-forma invoices that are paid each week before the candidate go on site. This can be harder to manage, especially if the candidates do not work a regular number of hours each week.
- DON’T BE AFRAID TO WALK AWAY
When a client fails a credit check, the agency should resign themselves to the fact that they may have to walk away from the placement. The reason the agency may have been offered the placement is because every other agency has walked away or been burnt previously so it could be the better option in the long run
MAYACHI Ltd works with and recommends reputable invoice finance companies and credit insurance companies to ensure that the agency clients are able to credit check their clients before placements are made. If a client fails a credit check, then MAYACHI can advise on how best to secure a new credit rating, adjust the contract terms, or sometimes walk away.
