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 money. It doesn’t matter if you’re billing £1,000 or £1 million every month it means very little if the cash isn’t sat in the bank because your clients are late in paying you. So what can you do?
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 in reality it could be 45 days or even longer.
This can place recruitment business owners under huge amounts of 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.
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 really matters is that your debtor days are kept to a minimum and there is sufficient cash hitting your bank account to cover your day-to-day outgoings. That’s why getting your finances in order needs to remain your number one priority.
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 will be able to 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 larger your payroll and list of expenses that need to be met. And, what happens if your new clients are late payers 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.
This is where specialist recruitment finance providers really come into their own.
Recruitment business owners need that constant assurance and peace of mind that their workers will be paid on time, every time and that they 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 it’s certainly not the reason why they went into business in the first place. As such, working with the likes of 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 that you generate does not determine the success of your agency – the only thing that matters is the amount of cash that is in the till. Get this side of your business right and the only restriction to your agency growth rate will be your own ambition.