Making permanent and contact/temporary placements is the easiest way for agencies to become profitable, but it is always a good idea to ensure that when the money comes in the top that the same amount isn’t dropping out the bottom.
Often agencies will be so focused on making placements that they do not realise that changing simple internal processes can have a large impact on costs, and in turn aid the bank balance.
Below are a list of some of the methods and processes TBOS have implemented to help our clients to save money:-
1.TAKE THE CREDIT CONTROL AWAY FROM THE INVOICE FINANCE COMPANY
Invoice finance is a great way to provide the funding that your agency needs to pay contractors before the client makes payment. However, relying on the invoice finance company to collect in your debts in a timely fashion can be costly – ultimately, they have little incentive to get the funds in as they will enjoy collecting additional interest for the funds you have borrowed and their collection methods are somewhat debateable. Invoice finance companies will only chase debts after the invoice goes 7 days overdue (often not before) and will only chase each client once a week. If you can do an element of chasing yourself, or even get an internal staff member to take this on, and move to a CHOCCS facility then this could be money and time well spent in the long run.
2. ENSURE YOU HAVE GIVEN LINKEDIN YOUR VAT NUMBER
As many recruitment agencies are often paying for numerous LinkedIn licences on behalf of their consultants, the actual charges for these are often overlooked. One of the most common mistakes is that agencies do not realise that LinkedIn is invoiced from Ireland and therefore they will charge Irish VAT, which is not reclaimable on their VAT returns. The way to ensure that this is not charged is to make certain that you enter your UK VAT number when you put in your billing information.
3. VERIFY EACH INVOICE RAISED WITH YOUR CLIENTS
When an invoice is sent to a client, each agency hopes the client will do the honourable thing of informing the agency of any errors and if it is correct that they ensure payment is made on time. However this is not always the case, with clients often not informing agencies of problems with the invoices (or simply throwing them away) and delaying payment to aid their own cash-flow. The best method to use is when an invoice is sent to a client by email, send a message with the invoice asking the client to verify that they have received the invoice, it is correct and it will be paid on the next payment run. If no reply is received within 7 days, follow this up to reduce any payment delays before the invoice is due.
4. PAY YOUR CONTRACTORS PAYE INSTEAD OF VIA UMBRELLA COMPANIES
With the new HMRC legislations meaning that umbrella companies are not able to process expense claims for the contractor’s, it means that there is no real advantage for the candidates to use them. There are many payroll software providers on the market so for agencies to run their own contractor payroll is now much simpler and more feasible, so this should be seriously considered as an option. Running a contractor payroll can aid cash-flow as the agency does not have to pay VAT on the candidate pay, the agency holds onto the holiday pay until the candidate is actually on holiday and the agency also holds the PAYE (Tax, Employers and Employees NI) until payment the following month. In some cases, having all candidates running through a PAYE scheme instead of being paid via an umbrella company can mean an agency can self-fund without need of an invoice finance arrangement.
5.SEND INVOICES AND PAYSLIPS BY EMAIL
This may seem like a simple method of saving money, but the amount of money you are spending on paper and postage to send your payslips via post will probably surprise you. Most invoicing and payroll software has the capability of sending all invoices and payslips by email which can be a huge saving as the cost of paper, payslips, envelopes, printing and stamps is not cheap.
6.MOVE YOUR INVOICE FINANCE FACILITY IF REFACTORING CHARGES ARE BEING CHARGED
Refactoring charges are an old school billing method by invoice finance companies which was originally designed for clients requiring funding on stock. This archaic method of charging clients for invoices that go ‘out of the finance period’ was not built for recruitment agencies but is used by some invoice finance companies to generate additional income. If you are being charged a refactoring charge, then it is definitely time to move to a different provider.
TBOS ensures that each agency we manage is constantly looking at their processes and monthly costs to see if there are ways of making savings or improvements. By handling the credit control of all of our agencies, we ensure that they have a strong bank balance and if they are using invoice finance facility that their interest charges are reduced. Also, due to the good relationships we have with numerous invoice finance providers, we can also get our agencies to have invoice discounting facilities instead of factoring which makes an even greater saving to the costs. Lastly, using TBOS to manage the full back office and accounting processes for your agency can have a huge cost saving on your external accountancy costs and any internal costs of admin/ bookkeeping staff.