As a rule, most payment terms are 30 days. You make a purchase, either something physical or for a service, and have 30 days to pay the invoice that is sent to you after the transaction is completed.

These payment terms used to be the standard in the world of temporary recruitment. An agency would supply temporary workers, and the client would pay regular invoices that in turn is used to pay those workers.

However, longer payment terms are becoming more prevalent in recruiting, so today we’re going to talk about why this is, and why it’s not been a positive change for the industry.

 

The Importance of Set Payment Terms

It’s impossible to avoid set payment terms in temporary recruitment because of how agencies operate. When you supply temporary workers, they can be assigned for a set term to cover leave, or on a rolling contract that gives clients the support that they need for as long as they need it.

If your clients only paid when the worker’s contract ended, it could be months or even years without payment, and you wouldn’t have the funds to pay their salaries. The workers themselves are paid on a weekly or biweekly basis so you need a steady flow of funds to ensure you aren’t eating into your savings.

When you have multiple clients all with their own payment terms, invoices might be being paid at different times, which means your earnings can appear sporadic. This is why recruitment funding is so valuable, as you have access to the funds you need during those periods when no invoices are being paid.

If you give your clients longer payment terms, up to 90 days, they aren’t paying invoices as often, that steady stream of income becomes more like a dripping tap that you only turn on every few months.

This means less money on hand to pay your workers. Many of the agencies working with us rely on our 100% recruitment funding to cover these gaps, but this creates a problem.

 

The Issues with Longer Payment Terms – How it Affects Us

Unlike other recruitment funding specialists, we only have one service, one that covers everything a growing temporary recruitment agency needs. It includes:

All for one price! However, as more of our clients are offering longer payment terms, the recruitment funding part is being put under a lot more pressure than usual.

In the past, recruitment funding was used to give our clients access to funds if an invoice was delayed by a few weeks, or if they weren’t due a payment for a short while. Think of it like borrowing some cash from a friend so you aren’t caught short before payday, then paying them back shortly after.

With longer payment terms, the gaps between invoices expand, meaning we’re providing more funds for longer periods. To use the same analogy, you’re borrowing that money from a friend, but aren’t paying them back as quickly as they’d like.

When we say ‘100%’ recruitment funding, that means you get all the funds you need, and we don’t charge interest. However, with longer payment terms, we have to pay more interest ourselves to provide the funds. And with those interest rates increasing, we may have to start charging more for longer payment terms so that we don’t lose out.

As much as we want to support our clients, we’re a business, but we also want to be fully transparent about our fees, so you know exactly what you’re paying for.

Longer payment terms don’t just affect your recruitment funding provider; it can also impact your business directly.

 

The Disadvantages of Longer Payment Terms for Recruitment Agencies

Debt protection is another facet of our service that is essential for any recruitment agency, regardless of size or industry. If your clients have longer payment terms, they also need a higher credit limit. This puts them at a higher risk of bad debt, which can affect your business as well as their own.

Your dedicated credit controller will be keeping a close eye on your clients’ credit limits, warning you if they are approaching their max. If they have a longer payment term –

That’s just the start. If you offer a longer payment term for a new client, it will be harder to renegotiate to a shorter one in the future. Your goal is to keep your clients happy, and changing payment terms is always a tough conversation.

Speaking of which, you’ll also need to talk with our credit control team about when you’re expecting invoices. Our service is designed to take the pressure off you and handle the admin on your behalf – it’s counterproductive if extra meetings are needed every few months to ensure your invoices are on their way.

 

The Benefits of Shorter Payment Terms

Longer payment terms might be a good selling point for your agency, but they can have negative effects that are hard to recover from. You want that consistent income as it helps to keep your workers paid without leaning too hard on your third-party support, and you can build a better picture of your income and invest more profits into growth.

If you stick to shorter payment terms, it’ll be mutually beneficial. Our invoicing support means that all invoices are checked multiple times to ensure their correctness, leading to fewer payment delays and a better relationship with clients. It also means that, if we are forced to charge more for longer payment terms, it won’t cost you an arm and a leg to get the service you rely on.

We value communication at Back Office Support Services, which is why we thought we’d create this blog to keep you in the loop about how the industry changes. Many of our team have a recruitment background, so we know your industry almost as well as you do, and therefore only make decisions that are best for all involved.

If you have any questions about our service, or want to start your recruitment funding journey, please don’t hesitate to get in touch. We look forward to hearing from you.