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Killer questions to ask when choosing a recruitment finance & back office provider

Having worked in the UK Recruitment sector since 1998 and having provided finance and back office to hundreds of agencies as CEO of Outsauce, I don’t think that there’s been more positivity across virtually all sectors and markets as there is right now.

The whole of the UK recruitment sector appears to be pretty bullish and I hear from some quarters that the sector will be worth north of £30bn next year and continue to grow at anything from 10 to 20 per cent YoY for at least two more years.

What exciting times we live in. But let’s take a moment to think about one of the two elephants in the room for all agency owners: Cashflow.

Have you got the cash flow to grow your business? With things going so well, it’s easy to lose sight of some really critical issues that could stop your business in its tracks, or at the very least not allow you to make as much hay as you can with this amount of sun.

Invoice Finance (Factoring or Invoice Discounting)

Unless you’re a perm only agency, you’ll likely already have a provider of Invoice Finance (IF) and maybe that’s tied in with a ‘bill & pay’ back office, and now is a really good time to ask them some hard questions about how they intend to support your growth.

  • If they are not a mainstream bank then do they have the enough funds themselves to support all their agency clients growing at 20 per cent YoY for two years, and most importantly yours?

  • How big is your ledger compared to their average?

If you’ve been with one IF provider for more than two years, then it might be a good time to do a bit of a sanity check. Think about how comparison websites in the energy and insurance sectors have opened up those markets for the customer. You may not have that luxury for this market but some leg work now will be time very well spent.

If you haven’t formally gone out to tender for your IF business then think about doing so. It's amazing which providers will positively respond to a little competitive tendering. Always remember that the IF industry loves the recruitment sector, its absolute gold dust for them.

  • How competitive are your terms and fees?

A good specialist financing provider will provide up to 100 per cent of your contract & temp invoicing, as well as a decent percentage of your perm billing. If you are getting less than 90 per cent then it's likely that there's a provider better suited to you. Remember that cash is king, and having the cash to grow will allow you to make more of this golden era

If you have a full ‘bill and pay’ back office provision, then make sure you know what you’re paying for line by line to allow you to compare apples with apples.

  • Do you know what your cost of your cash actually is?

At the very least get clarity on how much your cash is costing you, not forgetting all those little hidden extra charges that some providers hide away. This will allow you to compare with other service and cash providers.

I know many large agency owners already operate overseas, but SMEs should be able to compete as there is no real barrier to entry other than local currency factors. We’re not talking anything obscure, but if you want to make the most of working with larger end clients globally, or maybe look into new markets, then the ability to work in US Dollars, UK Stirling and the Euro could be critical to your strategy for growth.

  • Can your IF provide operate in multiple currencies?

Before you go about asking any or all of these questions and challenging the status quo, get out your agreement and check over the fine print to see what you are committed to and tied in to, or not as the case maybe.

Back Office (Bill and Pay) Support

Having a back office provision linked to cash sounds like a good idea, but it may be costing you. Think about all those services and some questions you might want to think about asking of your provider:

Invoicing your client for you:

o   How accurate is their performance, do you know?

o   Are they done immediately and electronically? Money can only be chased one the right invoice is with the right person.

Helping you manage your VAT provisioning:

o   Do they hold this? After all think about the benefits there may be to you managing this yourself and that VAT provision sitting with you not them. If you pay VAT quarterly then that cash could be mounting up, with no benefit to you.

Doing your credit control:

o   Chasing cash is a pain, I know… but how quickly do they chase it?

o   What are their average debtor days compared to other provider and how to your numbers compare to other agencies they manage? Every day they don’t get your cash in, is potentially costing you.

Managing Payroll and managing crown payments such as NICs & PAYE:

o   If you’re not a big agency but have an accountant separately from your ‘back office’ provider then this is something they might do for you

o   If you are a larger agency then this is something you might want to insource or maybe find a specialist payroll outsourced provider

Making sure your insured against bad debt:

o   Look at the numbers, how much cover are you getting?

o   Are they insisting on personal Guarantees?

o   Have they shopped around for the best deal for you?

These last three are areas that you might be able to insource and get a much better deal for yourself.

  • Do you know how much you’re actually paying for your recruitment back office?

Many providers should allow you flexibility to choose what you receive from them as a service package. So having clarity on the cost of all these ‘back office’ services is critical.

Let’s face it; it really should be a case of two things:

  • What service level(s) and nuances do I need for my current and future clients?

  • How much does it actually cost me?

If a back office provider can’t pay people on time and accurately and doesn’t raise invoices on time and accurately, chasing them up super-fast… then walk away or don’t pay as those are basic expected service elements.

More and more is going fully online and via mobile and tablet, so whatever sector you are in make sure that your provider can support your workers/contractors and clients’ needs for paper or electronic methods… I’m not saying what’s right or wrong, just make sure you know what you need and that a provider can deliver.

This isn’t a sales pitch, but it did rather dawn on me when writing this over a coffee, that there may be some people out there who just don’t have the time to have ‘choosing the right finance and back office provider’ as high up their agenda as they may like. If that’s the case, then seek out some external support to help you do the best job for your business. I guarantee that done right it will pay for itself at least three times over.

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