So, you run a recruitment agency and you have invoices that aren’t getting paid. This might be the first time or it might be something that happens often. Either way, you’ve made a placement and delivered what you know is a valuable service. This is creating cash flow issues, staff issues and taking up time.
To improve debt recovery, cash flow and employee satisfaction use these ideas to build your approach.
Block 1: Your Terms of Business are there to protect you so take them seriously...
Are your Terms of Business pulled together from other terms you have come across along the way? Do they reflect you unique value proposition? Are they consistent with your branding - images and language? Are they something you only want to slip in front of the client at the last minute?
You will need to fall back on your Terms of Business whenever there is a bad debt so get them in order. Be clear on what you provide, when you must get paid, and what your candidate replacement policy is.
Make them simple and professional so a client responds well to your Terms of Business when you present them. Consider them part of your sales proposition - brand them and make them look as good as your other marketing materials. You also want to be able to explain them and ensure your client can understand them.
Block 2: Don't have an ad hoc approach to credit (what you extend to every client you don’t bill immediately)...
Any business benefits from a credit policy that covers:
The customer: you should gather information about a prospective client’s ability to pay its debts. Use a credit reference agency
Credit limits: state how much credit you are willing to extend to clients. Stop bad debt blow outs
Payment terms: be clear when you may change your payment terms or offer discounts. When you are signing a client’s terms, understand your parameters
Upfront fees: you may want upfront payments from certain customers
Documents: you should get signed or acknowledged Terms of Business and have a clear and easy to read invoice that includes your payments terms and a description of services. You should also have a clear and easy to read follow up statement indicating the status of invoices
Timeframes: have a timeline for calls/emails/letters
Changes: who in your business can agree to accept terms outside of your credit policy? You may have delegations in place but make sure they suit you and your culture
Block 3: If you have an outstanding invoice, it pays to be prepared for difficult conversations...
The first step to getting an invoice paid is to pick up the phone. Are the people making those calls equipped to have the conversation? It is vital that any call about outstanding payment is professional and effective. The client may be a future client and so you don’t want to risk future business. You also don’t want a conversation to be threatening or get personal. So, invest in training for conversations for employees who make these calls. A structured, trainer-for discussion may unearth the reason for non-payment, and get you paid. Training will also equip your people for what can be difficult and stressful conversations.
Block 4: Call for help...
If a client still isn’t paying, you may need to exert extra pressure. It is good to also remember that debts older than 90 days are much harder to collect.
Using a lawyer can be a good idea as often a good letter is what it takes. A lawyer will also be able to help you understand further options. You can build an escalation process for debt recovery this way.
Block 5: It is worth considering the impact poor debt recovery can have on your consultants…
Just as you rely on your consultants to run a profitable desk, they rely on you to be able to pay them. The above steps will improve not only your cash flow but add to retention of good consultants.
If you want to discuss implementing any of these ideas, or you just want to talk about some legal issues facing your recruitment agency business please get in touch any time.
Martin has spent the last 12 years working as a senior legal adviser inside some of Australia’s foremost companies, as well as within the Australian businesses of some of the world’s largest companies. As ‘inside counsel’ Martin has learned that any effective commercial legal adviser understands how to balance the role of business defender with the role of business partner. Corvus are business lawyers and workplace advisors, with over 20 years’ experience working in Australian and international companies.