Recruiters still facing two month wait for payment from customers
Recruitment firms have to wait an average of 56 days to be paid by their clients, more than twice as long as the average UK business, says commercial law firm EMW.
EMW says that this extended delay in receiving payment is damaging recruiters' profitability, and hindering expansion plans. The average UK business waits 21 days for payment according to the 2015 European Payment Report.*
EMW says that the situation for recruiters has improved somewhat since the height of the recession, but remains highly problematic. In 2010/11 recruiters were forced to wait an average of 68 days for payment, in excess of the EU's late payment directive limit of 60 days.
After this period suppliers can legally start to charge interest on the outstanding debt, although EMW says that very few businesses do this for fear of damaging business relationships.
Gurpreet Sanghera, Principal at EMW, comments
"Many businesses are delaying paying recruitment firms simply because they can. Recruiters invoice their clients when a new employee begins employment, and a large number of clients then wait months to pay despite agreed terms. Many recruitment firms are SMEs whose clients are predominantly larger businesses. Given limited bargaining power many recruitment firms feel that they have to accept extended payment terms rather than risk alienating a large client. Competition in the recruitment industry is fierce, and the success of many recruitment companies' business models relies on rapid expansion plans. Disruption to working capital can hinder investment, particularly in new staff - usually the major cost for recruiters. Recruiters starting their own businesses often replicate the terms and conditions used by their former employers. The terms suitable for large businesses may not be appropriate for start-ups and should be adjusted accordingly."
"There are recruitment firms supplying practically every sector of the UK economy, which suggests that the late payment of recruiters is an endemic issue for the industry. The growth in the use of of Recruitment Process Outsourcing (RPOs) businesses over the last decade has added to the delay some recruiters face in receiving payment from clients. RPOs sit between end clients and recruiters managing the recruitment agencies. Monies due to the agency can be delayed if the RPO does not pass on money from the client. RPOs are increasingly popular with the clients of recruiters as they can help streamline the recruitment process. However adding an extra step in the transaction process inevitably increases the time recruiters wait for payment."
Recruitment firms wait twice as long for payment from clients as the average UK business
Recruiters are still waiting an average of two months to be paid by their clients
*Report produced by the Intrum Justita – payment period is for business to business transactions.
For more information, contact Gurpreet Sanghera.