Securing Payments: Challenges Facing Recruitment Agencies

Recruitment agencies have faced a variety of challenges in recent months, making it less certain whether they will receive payment from their customers on time.  The level of impact depends on the sector they operate in.  Certain sectors such as nursing/healthcare, logistics, and supermarkets have seen an increase in activity and spike in demand as a result of COVID-19. The hospitality, restaurant, and travel industries are among the hardest-hit sectors. As a result, some businesses in these industries are making their employees redundant, and this has significantly reduced recruitment activity.

Recruitment agencies focused on permanent recruitment have in general been far harder hit by the lock-down than those with a mix of temporary and contract placements. However, the UK Government’s plan to ease lockdown measures to return to more normal business operations in the months ahead, along with vaccine progress, led to a marked improvement in recruitment activity in March. According to the Recruitment & Employment Confederation (REC), the anticipated uptick in activity related to the easing of COVID-19 restrictions drove the quickest increase in overall vacancies since August 2018. However, while permanent and temp placements are increasing, and pay improving, the availability of candidates remains stagnant. This is largely due to concerns relating to the security of new employment.

Recruitment companies working in the harder hit sectors, which have been shut down or operating at lower than usual levels, may find their customers take longer to pay their invoices. This is going to impact their business. Recruitment companies and employment agencies already have to wait long periods for payment, with large sums accruing in between invoice payments from clients. Often, they will often have to pay wages months ahead of receiving these payments. The current crisis brings with it a significant increase in the risk of non-payment due to the considerable deterioration of companies’ financial positions globally. 

The UK has seen a drop in insolvencies in 2020, due in part to Government support measures and the postponement of creditor insolvency actions. Government insolvency statistics show that the total number of company insolvencies in the 10 months after  the first lockdown is down an estimated 35% compared to the 10 months pre-lockdown in March 2020.  However, insurers are forecasting insolvency levels will significantly increase in Q4 2021/Q1 2022 as the wide range of state support schemes are phased out. In light of these heightened risks, it is crucial for recruitment companies to ensure they have adequate measures in place to protect themselves against possible non-payments.

For the vast majority of recruitment companies, the debtor book is a key asset. Securing the debtor book with an adequate credit insurance policy is even more essential in the current climate. A policy of this nature would guarantee that if a client is facing insolvency or protracted default, any outstanding invoices would be paid.

Often, recruitment companies utilise the “bad debt protection” (BDP) elements of their facilities to discount the invoices of struggling clients. With better coverage levels, companies can opt for the level of security needed to fully underpin their debtor books, and ultimately their balance sheets.

A credit insurance policy will also make the business more attractive to potential investors and lenders; it can also help ensure that credit management is working as effectively as possible.  Recruitment companies can also check out the financial health of new and potential customers, but utilising the insurer’s credit intelligence and grading systems. This can provide an early warning system for businesses.  Businesses can buy trade credit insurance for their entire portfolio of customers, or for individual accounts.

Key takeaways

Businesses should not be lured into a false sense of security by rising recruitment rates. The need for resilience against insolvencies is paramount, and a credit insurance policy will go a long way in providing some safeguards. The benefits of buying a credit insurance policy include:

  • Improved access to receivables financing.
  • Protection against non-payment for goods or services provided on credit terms.
  • Ability to leverage real-time information that credit insurers have on customers to support credit management/sales.
  • Safeguards that allow ability to extend payment terms to wider range of customers, which supports growth.

Meet the author

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Rebecca Liddle

Business Development Manager, Trade Credit, Marsh Specialty UK