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Top 3 Cash Flow problems for Recruiters considering Contract Placements – Part 2

Posted on May 14th, 2016 Read time: 5 minutes

Written by Trevor Foster

As the temporary staffing market continues to grow rapidly, many independent recruiters have been considering adding contract placements to their list of services in addition to permanent placements. In doing so recruiters can leverage their existing contacts and clients to add significant revenue that can be very profitable. Of course, with any change, there are some important items to consider before adding this service – many of which are straightforward and some that are not.

This series of articles will not address all of the individual components of adding contract placements (like providing employer of record and payrolling services for the contractors placed at client sites). Instead, the focus will be on the top 3 cash flow problems that recruiters face when getting into temporary staffing – a vital part of providing complete contract placement services for your clients.

As with any small business, cash flow is one of the most important things to manage. It is, similarly, one of the most frequent concerns keeping owners up at night. With the nature of temporary staffing (where the majority of billing is for paying wages, taxes, and benefits for employees) cash flow becomes an even larger issue to manage. When considering adding contract placements to your business, cash flow problems generally come from three areas; invoicing, collections, and contract management.

This article is part 2 of a 3 part series designed to highlight those three problems with cash flow as well as some tips to manage them.

 

Collections

If you’ve managed to deliver accurate, timely invoicing to the correct person at your client, you must now focus on collections. This is often an uncomfortable thing to do once invoices get past due so it is smart to focus your energy on being proactive. Remember, as the employer of record providing payrolling services for your contract placements, the majority of your invoice is for paying wages, taxes, and benefits for employees. If you allow invoices to go beyond your agreed upon payment terms, you can quickly find yourself in a cash flow emergency.

Correct contacts

As a recurring theme, it is vital to have the correct contacts at your client to allow you to efficiently follow up on invoicing. The most important step in collections is verifying your invoice is approved and ready for payment. Often the contact for accounts payable is the same person you’ll reach out to in order to check the status of an invoice, but not always. In some larger clients the accounts payable team will be quite large and segmented by function, with an entire team focused on inputting invoices and a separate team focused on issuing payments.

Additionally, you may be more effective with moving an invoice along for payment by contacting your original buyer at the client and asking them to ensure payment is forthcoming. This may be the route to take especially in larger companies where it may be difficult to develop relationships with accounts payable contacts due to the size of their team. If you still don’t have luck in reaching the person capable of ensuring payment for your invoices, it may be hung up with the company’s controller or other financial leadership. Large invoice amounts due to the inclusion of wages, benefits, and taxes makes invoices for temporary staffing and payrolling services an easy target for a company managing their own cash flow concerns.

Tip: Try including late fees for invoices that are not paid on time in your agreements with clients – often this allows you to get the attention of your client’s accounts payable department looking to avoid unnecessary charges.

Structured, consistent approach

A unique aspect of providing payrolling or contingent workforce solutions for your clients is the amount and type of backup required to validate invoicing. Serving as the employer of record, you are responsible for collecting and storing the supporting detail to pay employees for time worked – that means the client will often require you to gather and submit that detail to them along with invoices. This is just one concern when formulating a structured and consistent approach to your collection process.

In addition to providing proper supporting documentation for each invoice, you should have consistent practices for submitting invoices and following up on payments. If you submit invoices irregularly or with a different appearance, you will often delay payment simply by creating confusion with the accounts payable clerk. Additionally, if you don’t have a proactive procedure in place to remind clients that an invoice will become due, you are missing out on an opportunity to gently nudge your client into staying within terms. As a rule, proactive collections procedures are much more productive than waiting until you have a serious problem.

Tip: You don’t want to worry about invoices being paid at all times of the day, so schedule collections activities that include reminding clients of invoices that are becoming due in a few days – this will often alert you of any issues with an invoice before it is past due so you can address it early.

Attention

Collections may sound like a lot of work, and it certainly can be. Due to the nature of payrolling contract employees as their employer of record, you simply cannot afford to have collections issues – especially with large clients. You must apply significant attention to collections in order to keep cash flow positive. Too many times a small business owner has not paid appropriate attention to collections until it becomes a true cash flow emergency. Then it will take all of your attention – often allowing one late paying client to interrupt the rest of your business as you struggle to make payroll for your staff and your temporary employees.

Collections may be the hardest part of providing contract placements as the employer of record. Focusing on applying enough attention to outstanding invoices on a regular basis is often the only way to prevent damaging client relationships, being late with payroll, or even driving your business into bankruptcy.

Tip: Review your accounts receivable ledger often and set calendar reminders to prompt you to perform collections activities rather than relying on remembering to do them on your own – this is easily one of the most popular things to put off until it becomes an enormous cash flow issue.

Collections of invoices doesn’t have to take over your life, if you don’t let it. Focus the appropriate amount of attention on this part of running your business and you’ll be sure to keep on top of any collections issues. Use a structured and consistent approach along with diligently identifying the correct collections contacts to make short work of managing this common cash flow problem.

Cash flow is one of the most important concerns for running a successful contract placement business that handles the employer of record and payrolling services for temporary employees. With careful management and proactive procedures, you can set yourself up for success with accurate and timely invoicing, structured and consistent collections procedures, and careful contract management practices. It’s important to not let cash flow management become an afterthought – stay on top of problems so you don’t find yourself with a wildly profitable contract placement business that’s running out of cash!

Tip: Like many parts of running your business, enlisting help with the things you aren’t naturally good at can provide dividends in the long run. Explore hiring administrative help or using HR Outsourcing Services who can help manage these cash flow, employer of record, and payrolling activities so you can spend your time growing revenue for your contract placement business!

Cash flow is one of the most important concerns for running a successful contract placement business that handles the employer of record and payrolling services for temporary employees. With careful management and proactive procedures, you can set yourself up for success with accurate and timely invoicing, structured and consistent collections procedures, and careful contract management practices. It’s important to not let cash flow management become an afterthought – stay on top of problems so you don’t find yourself with a wildly profitable contract placement business that’s running out of cash!

Tip: Like many parts of running your business, enlisting help with the things you aren’t naturally good at can provide dividends in the long run. Explore hiring administrative help or using a Back Office HR Outsourcing Services like Innovative Employee Solutions who can help manage these cash flow, employer of record, and payrolling activities so you can spend your time growing revenue for your contract placement business!

Article part one

Article part three

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