Your Client Hasn’t Passed a Credit Check – What Now?

A client going bust or not making payment can have a detrimental effect on a recruitment agency, especially if they do not have any credit protection in place.  In order for an agency to protect themselves, they may take out a bad debt protection (BDP) or full credit insurance policy (this may be provided as part of the agencies invoice finance arrangement).  Even though an agency has credit insurance in place, there is still some administration required to ensure that the clients billed are able to be insured and that the insurance covers the amount of outstanding debt.

The first port of call for an agency is to run a credit check on the client, but if this is refused then are a few things you can do to try and overturn this decision and have a limit granted:-

  • Up to Date Financial Information
    More often than not, the credit rating of a company is largely based on the last set of statutory accounts submitted to Companies House. As these can be submitted up to 9 months after the company year-end, this means that the financial figures can be out of date straight away.  Asking a client if they can provide up to date management/ draft accounts may be enough to make a decision as to whether it is worthwhile taking the risk on a placement.  If you have credit insurance it may be that the client will provide these to the insurers in order to secure a protected credit limit.  If a client refuses to provide these then it may be that the figures have not improved or they have something to hide, so this is something that you will need to take into account when deciding whether to enter a business relationship.
  • Invoice to Another Company Within the Group
    If the client you are dealing with has other subsidiaries or companies within their group that have a sufficient credit rating, it may be possible for you to contract and invoice with that company instead. However, if the company is a standalone organisation then this may not be an option.
  • Parental Guarantee
    Another alternative if the company is part of a group of companies is to try and get the parent company to guarantee the debt in the even that the client goes bust or refuses to pay.  If the parent company has a good credit rating and you can get them to sign a parental guarantee then this should be sufficient to protect the debt.
  • Reduce Payment Terms and Notice Periods
    If you haven’t managed to get a credit rating on your client but you still want to provide them with your services then you need to reduce your company risk. The best way to do this is to reduce your payment terms and reduce any notice periods that can be given to the client.  This way if the client starts to fall behind on invoice payments, you can at least get the candidate off site to reduce any further financial risk.

TBOS manages the credit insurance policies of many of our recruitment agency clients, whether this is with a credit insurance provider on a separate basis or as part of their invoice finance arrangement.  As part of that process, TBOS will run requested credit checks on new clients and ensure that the outstanding debt is covered by increasing limits as required.  Should a client fail a credit check or their current rating drop, TBOS will help and support the agency in trying to obtain a limit if possible.  For more information on how TBOS can help set up and manage your credit protection policy for your agency, please contact our office.

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