Financial advice for directors of recruitment agencies struggling with cash flow

Reviewed: 4th June 2018

An ongoing supply of new work is crucial if you operate in the recruitment industry. Should regular clients be lost, or a key contract moves their business elsewhere, for example, it can be disastrous even for agencies that were previously highly profitable.

If your recruitment agency is experiencing cash flow issues, it’s also vital to act quickly. Any significant delay in addressing the problem could quickly result in insolvency, and the possibility of having to close the business down through liquidation of its assets.

Dealing with recruitment agency cash flow problems

The good news is that, if your business is suffering a financial decline, a number of remedies could see your agency thrive once again. These range from sourcing alternative forms of funding, to simple adjustments in your in-house systems, but seeking professional advice under these circumstances is highly advisable.

Apart from helping the company recover from a financial decline and avoid insolvency, guidance and support from industry experts who understand your specific issues can reap huge rewards in the long-run, potentially allowing you to far exceed the turnover and profits levels you once enjoyed.

So what issues might have caused your decline as a recruitment agency

Losing a key client - The loss of a major client can be a devastating blow, particularly if there is insufficient work in the sales pipeline. Because they accounted for a large proportion of your turnover, replacing a key customer in the time needed is very difficult. You only have a limited timescale in which to deal with the situation before cash flow becomes unmanageable, and you fall behind on your priority bills.
Struggling to keep up with an HMRC Time to Pay (TTP) arrangement - Although HMRC can be sympathetic to businesses facing cash flow problems, if you have already negotiated a Time to Pay arrangement to bring your tax and National Insurance liabilities up-to-date, and this is now faltering, HMRC are likely to take action against you quickly.
Difficulty in finding new work - If you’re struggling to find new work, it’s unlikely that you’ll be able to improve your cash flow position without further financing. Although cost-cutting exercises and efficiency-improvement measures may help for a while, your cash flow may not be bolstered sufficiently in the long-term.

What can you do to improve cash flow in your recruitment business?

Obtain professional insolvency help

The importance of seeking professional insolvency assistance under these circumstances cannot be overestimated. If your business does decline into formal insolvency, the fact that you’ve already sought support from professionals may positively influence your creditors into accepting longer-term payment plans.

It demonstrates that you take your agency’s financial situation, and your responsibilities as director, seriously, and wish to place creditor interests ahead of your own and those of your business.

Invoice finance

Factoring and invoice discounting can be particularly suitable for recruitment companies, and ensures you receive a constant flow of cash into the business throughout each month. It helps you to pay your bills as they become due, and plan your future cash requirements with confidence.

You may receive around 90% of each sales invoice soon after it’s issued – usually within 24 hours – with the remaining proportion becoming available (minus your fees) when the financier receives payment from your customer.

Invoice factoring also allows you to also outsource your credit control facility if you wish – in some cases this can represent huge time savings, and allow you to focus more on securing new business.

HMRC Time to Pay (TTP) arrangement

Falling behind with HMRC liabilities is particularly worrying given their power to take fast action against insolvent businesses. Negotiating a Time to Pay arrangement can help by providing the valuable extra time, potentially up to 12 months, that you need to pay your arrears.

It’s important to act quickly, however, and contact HMRC as soon as you know that a payment will be missed. Whether they’re agreeable to a TTP will depend on your previous history of payment.

Company Voluntary Arrangement (CVA)

If cash flow is such that your business is formally insolvent, a Company Voluntary Arrangement (CVA) could be a suitable option. If you’re eligible, it would allow you to regain control of your business once a licensed insolvency practitioner (IP) has negotiated the formal agreement, and to lead your company out of financial trouble.

A CVA involves you making one affordable monthly payment which is then distributed to creditors according to the agreement. This is a legally-binding arrangement, so your business is protected from further creditor legal action as long as the repayments are made in full and on time.

Real Business Rescue are industry experts and have vast experience of helping recruitment agencies out of financial difficulty. We will ensure you understand all your options, their implications for you as a director, and can support your business throughout. Call one of our experts for a free same-day consultation – we operate with 72 national offices.