As a debt recovery agency specialising in the recruitment sector, Sterling Debt Recovery has a unique insight into payment practices in the market. All evidence suggests an increase in instances of non-payment in the sector, with the number of agencies suffering from bad debts rising considerably over the past three years.
Whilst non-payment due to client insolvency has been growing in-line with other market sectors, there has been greater growth in incidences of disputed fees for recruiters. To add to the problem, clients seem to be increasingly willing to engage in back dooring recruiters, hiring the candidate without informing the agency, or by quietly converting a contractor or temp to a permanent contract. Some sectors seem to be hit worse than others, with back door engagements a regular occurrence in healthcare and technical recruitment in particular.
The other most regular reasons for non-payment that we experience are: ‘It turns out we knew the candidate already; another agency had already submitted the CV; the candidate was employed later in a different role; the candidate left before the end of the rebate period; our other business hired the candidate and had no agreement with you’.
In all of these cases payment should be due, that is assuming the terms of business are strong, they have been incorporated correctly, and the agency has complied with their own terms and legislation (the Employment Agencies Act 1973 and the Conduct of Employment Agencies and Employment Businesses Regulations 2003 in the UK).
Avoiding bad debt
There are actions agencies can take to help avoid bad debts, and to put themselves in better stead should a dispute occur.
1) Make sure your terms of business and processes are watertight (even the most commonly used terms from the two leading recruitment sector associations have weaknesses that can be improved upon).
2) Ensure your TOBs (terms of business) are incorporated correctly. It’s a common misconception with recruiters that emailing the terms of business and CV together means that a contract is in place. When dealing with a new client and even a new vacancy, you should ALWAYS e-mail the client your terms of business separately with a cover letter or cover message BEFORE sending details of any candidates. This provides a clear separation between formation of the contract (incorporation of terms) and performance of the contract (an introduction). If the client negotiates your terms or ignores them without offering alternative terms, your terms of business should then apply and you can proceed to performance (introductions). As a belt and braces approach, we also recommend an introductory cover letter with the terms and an e-mail footer with a hyperlink to your terms on all out-going e-mail.
3) We regularly see agencies filling roles for companies listed as non-trading, in dissolution or with multiple County Court Judgments (CCJs). It’s quick and easy to carry out credit checks on new and existing clients with a subscription to a credit checking service costing as little as £300 per year.
4) Set up a process for searching for back door engagements on a regular basis. Ideally you should be searching the past 12 months of CVs and doing this every quarter. Searching manually is a time-consuming job, so consider outsourcing the process to a ‘no-find, no-fee’ specialist.
5) When a client raises a dispute, explain your position clearly and succinctly in relation to your terms of business without any emotional language or discussions around what is fair or not. Often customers will raise a dispute simply to avoid payment, but clients can genuinely misunderstand their liability to pay in certain situations, in which case it is possible to achieve payment whilst maintaining the relationship and the chance of future business.
6) Work with a debt collection agency specialising in the recruitment sector, and preferably one that works on a commission only basis with no additional fees. A good debt collection agency will add late fees and what is termed ‘reasonable costs of recovery’ to your invoice value, so that in most cases the debtor will effectively cover the cost of the collection service. You can sign up with a debt recovery agency without charge or obligation so that you’re ready to refer to them quickly when the need arises.
Tools for recruiters
You can find further advice on the useful tools area of the Sterling website, including letter templates dealing with most of the disputes above, a letter advising your client that they have back doored you, and a final demand template.
Sterling Debt Recovery is a debt collection agency specialising in the recruitment sector and winner of the Recruitment International Best for Business Services Award. We have debt collectors working exclusively on recruitment debt on a commission only basis with no up-front fees. With over 10 years’ experience of collecting for recruiters, we collect the vast majority of debts whether in the UK or international without the need for legal action.
When necessary we can provide legal services with a solicitor working in our office almost exclusively on recruitment sector cases. We provide and tailor terms of business for perm or contractor placements, or can review and improve your existing contracts.
Our back door hire fee finder service which trawls your data to find engagements you’re not aware of is available on a no-find, no-fee basis.
For agencies with over £1m turnover looking for ongoing support our outsourced credit control service gets you paid quickly whilst protecting your customer relationships and allowing you to focus on growing your business.
For agencies using invoice financing, our services can work seamlessly alongside the finance facility to give you the best of both worlds.