The most common factor that frustrates the growth plans of recruitment consultancies is the ability to hire good people. This can be due to cash flow restricting the company’s ability to invest in new staff or the fact that high levels of churn (staff moving jobs) in the recruitment sector mean that the good people you find are simply replacing the good people you have lost.
Freeing up cash flow to invest in talent
The payment terms in the recruitment industry mean that it is often months before the consultancy sees any, let alone all, of the fee it has earned. The delay in payment means a delay in being able to invest in the business.
Invoice discounting enables recruitment consultancies to borrow using invoices that have been raised but are yet to be paid as collateral. Even if the invoice is never paid the consultancy will need to repay the loan according to the terms. Crucially responsibility for raising the invoices and credit control remains with the consultancy, safeguarding your client relationships. The lender will charge a monthly fee and interest on the amount loaned.
While invoice discounting may impact the availability of other sources of financing it is useful where the additional profit generated as a result of the loan will exceed the cost of borrowing the money.
Factoring companies provide another source of quick cash. These companies buy the accounts receivable (i.e. invoices) from the recruitment consultancy at a discount. This discount reflects the risk that the factoring company is taking by buying the debt. The client may never know that the debt has been sold as often the recruitment consultancy will invoice the client and provide credit control.
Minimising churn and the disruption it causes
Finding the right person for a role (and this is a future blog post in itself) is both time consuming and critical: after all if finding good people were easy then your clients wouldn’t need you. Having found the right person it is rare that they will deliver to their potential from day 1 and so whenever you lose anyone competent the efficiency of the organisation drops.
Retention is therefore crucial and every recruitment consultancy should have an internal staff retention and incentivisation document that is reviewed by the board every month.
Your retention and incentivisation scheme should be personalised to ensure that it reflects your staff’s needs and motivating factors – NB money is not always the answer. The scheme should also be constantly evolving to maintain the team’s interest and engagement with it. To ensure your scheme is competitive interview every new starter on their first day to better understand what attracted them to join you and what frustrated them about their previous role as well as to gather details of their previous employer’s incentives scheme. It also provides a great opportunity to identify other staff who might be interested in joining you.