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Solving debt collection issues in recruitment

Overdue customer debts are a growing problem in the recruitment sector. What are the issues involved? Can you reduce the risk? And what do you do if you’re not getting paid what you’re owed?

The recruitment sector is a huge part of the UK’s economy. According to the Recruitment and Employment Confederation, the industry’s direct gross value added (GVA) contribution amounted to an estimated £41.3 billion in 2022.

However, the sector is facing a growing challenge. Recruitment businesses across the UK are experiencing late payment or non-payment of fees by clients. If you’re regularly paid late, it can have a serious impact on your cash flow. Not being paid at all can threaten the core financial stability of your business.

Why is this happening and what can you do as a recruiter to reduce the risk of overdue debts? Here are some of the challenges and how to deal with them…

Hiring via the back door

The unscrupulous practice of back door hiring can be a real bugbear for any recruitment agency. Whether it’s done intentionally or not, it totally undermines the value of your service.

Keeping track of potential back door hiring cases can be difficult and time consuming. However, there are a few simple things you can do to reduce the risk of a client and candidate colluding to cut you out of the picture.

Firstly, you should make sure you have strong client relationships based on mutual trust. That means building rapport with the HR team and ensuring good lines of communication. It’s also important to build candidate loyalty by staying in touch, showing them that you’re working hard on their behalf and following up assiduously on all opportunities.

Having a good CRM system and audit trail will help you identify any cases of back door hiring and give you the evidence to make a claim for unpaid fees. For example, you could regularly cross-reference candidate CVs sent out against reported placements.

Avoidance of temp-to-perm fees

Otherwise known as a ‘transfer fee’, a temp-to-perm fee can apply when a client gives a permanent job to a temporary worker who was provided by a recruitment agency.

Unfortunately, clients will sometimes try to avoid paying the fee, either by not telling the recruitment agency that they’ve taken the employee on permanently or simply refusing to pay the invoice.

To avoid this, it’s vital that your terms of business are watertight and that you’ve clearly documented your relationship with the temporary worker. You can only charge a transfer fee if your contract with the hirer gives them the option to extend the worker’s assignment, they don’t take up this option and the employee is given a permanent job within eight weeks of finishing their temporary assignment (or less than 14 weeks after the assignment started, if that’s later).

Clients may use various excuses to negate your placement claim, such as claiming they already knew the candidate, they found them via another source or that there was a significant delay between the end of their temporary contract and the beginning of their permanent one.

Time is money

Timesheets are essential to the successful management of temporary or contract staff. However, problems can arise when employers don’t authorise them, they include errors or there’s a question mark over the performance of the worker. In all these cases, you can find yourself not getting paid what you’re owed.

If you receive any unsigned timesheets, follow up with the client and get authorisation promptly. The other two issues can be dealt with via your terms of business. You can specify that hours recorded on any timesheet will be deemed to be correct if not queried. You can also make it clear that you can’t make any guarantees regarding the performance of the worker and set out a clear procedure to be followed if the client is dissatisfied.

Is it time to get professional help?

If you’ve encountered any of the above issues and you’re struggling to recover the money you’re owed, it could be time to take things to the next level. At Redwood, we’re experts in debt collection and we have a strong track record in the recruitment sector. Acting with professionalism, integrity and sensitivity, we can help you deal effectively with overdue debts without negatively impacting on your valuable client relationships. It’s all about helping your business Grow Stronger.

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