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Waiting to be paid: How to reduce debtor days and focus on agency growth

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    Waiting to be paid: How to reduce debtor days and focus on agency growth


    If you’re a business owner, the chances are that the one thing making you nervous more than anything else is when you will be paid. Whether you’re billing £1,000 or £1 million monthly, it doesn’t matter. It means very little if the cash isn’t in the bank because your clients are paying you late. So what can you do?

    Late payments

    Late-paying clients are the bane of all businesses – you work hard to find the right candidate, the client loves them and decides to make an offer, and you duly issue your invoice for services rendered. In an ideal world, the client would settle their account within 30 days, but it could be 45 days or even longer.

    This can put recruitment business owners under huge pressure – pressure to pay their workers, staff, overheads and even themselves. This lack of access to the cash they need when it is needed is the number one reason why agencies go out of business.

    What matters

    The adage revenue is vanity, profit is sanity, and cash is king is as valid today as it has always been. That’s because generating high sales does not ensure profitability, just as high profitability is no guarantee of financial viability.

    What matters is that your debtor days are kept to a minimum, and sufficient cash is hitting your bank account to cover your day-to-day outgoings. Therefore, getting your finances in order must remain your top priority.

    Cash flow

    For instance, suppose you run a temp agency, and you land a great new client win that involves supplying a dozen workers for a three-month contract, and the client needs these workers to start immediately.

    Yes, you may have access to a candidate pool and can easily find the right people they need when they need them. But you need to consider if you can pay them at the end of each week before your client has paid their invoice.

    It’s a simple fact of being in business that clients can and often do pay late, and simply selling more won’t overcome any cash flow challenges you may face.

    Indeed, the more sales you generate, the more extensive your payroll and list of expenses. And what happens if your new clients are paid late too?

    Simply put, your ability to cover your costs as each debtor day goes past will be compromised: workers who are paid late don’t tend to hang around for too long, and that could bring an early end to the contract, not to mention the damage caused to your agency’s reputation.

    Finance providers

    This is where specialist recruitment finance providers come into their own.

    Recruitment business owners need constant assurance and peace of mind that their workers will be paid on time and are protected from the consequences of bad debt and late payments.

    Equally important is knowing that this will happen without them being side-tracked from being business builders to performing the role of credit controller and debt manager – that’s not their strength and is certainly not why they went into business in the first place. As such, working with Simplicity ensures that you have access to the funds you need when you need them.

    Keeping a close eye on your agency’s cash flow and ensuring that you have the systems in place to meet the demands of your clients is imperative. But it shouldn’t consume your every waking hour – providing you partner with a finance provider who can support you.

    Remember, the number or even value of sales you generate does not determine your agency’s success – the only thing that matters is the amount of cash in the bank. Get this side of your business right; the only restriction to your agency growth rate will be your ambition.

    Editors note: This post was originally published on 5th July 2017 and has been completely revamped and updated for accuracy and comprehensiveness. 

    Read our pervious blog to learn the benefits of online timesheet for you temp agency.