As recruitment businesses start to return to the office environment and consultants are gradually coming off of furlough, directors have to review their current and future plans to ensure they can survive the coming months and potentially plan for another lockdown if there is a second wave.

Part of this planning will be to review the current arrangements they have in place and ensure that they have sufficient cash flow and funding, especially if they are looking after temps, contractors and interims. However, the pandemic has had economic repercussions that could impact recruitment agencies funding which needs to be addressed.

IMPACT ON CREDIT INSURANCE LIMITS CAUSED BY THE PANDEMIC

With the majority of businesses having reduced trade or no trade during the pandemic, this has led to a large number of insolvencies over the last three months and, unfortunately, the predictions are that this will continue beyond 2020. This has caused many of the credit insurance providers to review the ratings of their clients and either reduce their credit limits (to reduce their exposure) or remove them completely. Many credit insurers are also currently increasing their premiums due to the belief there will be more claims in the coming 12-18 months. Recruitment agencies who have credit insurance or bad debt protection (often linked to their contractor finance arrangements) need to ensure they are still covered and not leaving them exposed should their client go bust.

RISK APPETITE AND FUNDING CONCERNS FROM BANKS AND INVOICE FINANCE COMPANIES

Many banks during the pandemic have changed their policies regarding new business, either because they concentrated efforts on their existing clients or were busy supplying CBILS or Bounce Back loans. This means that simple tasks such as setting up new bank accounts, opening currency bank accounts or organising a new invoice finance arrangement have become tougher. Also, invoice finance companies are becoming stricter on the criteria for invoice finance arrangements to ensure that the funds are used to pay the candidates and not to help a business survive a few extra months.

MANAGING CASHFLOW AND ANALYSING OVERHEADS

Now that the furlough scheme is starting to mean that agencies will have to contribute towards the staff’s wages, many directors are beginning to review their current staffing levels and overheads in the hope that cutting these costs can see themselves through the next 6-9 months. Receiving management accounts and cash flow forecasts should be a staple for directors to monitor the situation monthly and making decisions regarding whether a staff member is productive and profitable can be the difference between surviving and going bust. Directors who are basing their business on their bank balance instead of accounting figures could be leaving themselves open to falling behind on their HMRC liabilities or insolvent trading.

It is important for recruitment directors to look at all aspects of their business finance and make plans to ensure that they are not only ready when the world returns to some kind of normality, but just in case there is a second (or even a third) wave which could lead to another lockdown and a further reduction in trade.

TBOS provides a comprehensive back office and accounting function to over 100+ permanent and contract recruitment agencies. Please contact our office if you would like further information on how we can help your agency.