THE PROS AND CONS
There are many different types of recruitment agencies in various different industries in the UK with each one providing various combinations of three types of placements; permanent placements, contract placements and temporary placements. Each of these types of placements has its place in the market and provides clients with a choice of staff but each type also has an impact on the cash-flow, administration and perspective of the agency. When you are starting your own agency or exploring the possibility of moving into a new market or industry you need to have an understanding of what type of placements you will be making and the impact on the business. Hopefully we can shed some light on the pros and cons of each type of placements:-
- PERMANENT PLACEMENTS –
Permanent placements are when a recruitment agency provides a client with a permanent member of staff and charges an introduction fee often based on the annual salary of the position.
- Pros – Permanent placements are instant fees to recruitment agencies as there are no major outlays or funding required to make a placement. As the staff member will be employed by the client this means that the amount of compliance to make a placement is greatly reduced and the administration often involves only some signed terms of business and an invoice for the fee.
- Cons – An agency is only as good as the last permanent placement that they have made which means that once the last placement is made there may not be any more. An agency which only deals with permanent placements have a reduced company value to a contract/temp agency as the future fee value is virtually zero.
- CONTRACT PLACEMENTS –
Contract placements are when a recruitment agency provides a client with a member of staff for a period of time at an agreed hourly/daily charge rate. Often the client will pay the invoices based on a signed timesheet and pay the invoices on 30 day+ terms but the candidate will be paid (mainly to Limited/Umbrella companies) beforehand often on a 7-14 day term arrangement.
- Pros – Once an agency have a number of contract placements on the books this can ensure that the agency is generating daily profit even when no placements are being made. This can ensure that all overheads are covered each month by the contract profits to relieve pressure on the agency sales. Contract agencies have a much greater turnover as the billings to the clients are reflected in the accounts and can make the company more appealing to a potential buyer especially if the contract placements have extended contract periods.
- Cons – Contract placements require some kind of finance in order to ensure the candidate is paid before the client makes payment (either external funding or invoice finance) which can add to the costs. The administration on contract placements to administer the timesheet, invoicing and payments means that agencies will either require internal staff or an outsourced accounts department. If a contract placement finishes early this can have an instant impact on profitability and turnover.
- TEMPORARY PLACEMENTS –
Temporary placements are when a recruitment agency provides a client with a number of staff on a short term basis often at short notice. The turnover of staff is often high and the margins are often low. Normally the client will pay the invoices based on a signed timesheet and pay the invoices on 30 day+ terms but the candidate will be paid (mainly to PAYE due to the low/minimum pay rates) beforehand on a weekly basis.
- Pros – Once an agency secures a client who requires temporary staff this can be a lucrative way of generating a sustainable income. If a small number of staff are absent or sick then this can have a minimal impact on the profitability of the deal and can easily be replaced by candidates who are willing to slot into the role at short notice.
- Cons – Due to the high staff turnover on temporary placements the agency needs to have a large bank of available candidates who are compliant and ready to work. This can means that most of the agencies time is taken with resourcing for candidates and ensuring they are fully compliant and then booking them onto the client’s shifts. The weekly timesheet and payroll processing can also be extremely time-consuming with the costs cutting into the already low margins generated.
Many agencies will adopt a strategy to make a mixture of these type of placements to offer their clients the best possible staff and also to ensure the continuity of profitability within their business. Often new start agencies will start with only making permanent placements to avoid requiring funding and move onto contract/temporary placements once they are more established. Agencies can ensure that they have enough income from their contract/temporary placements to cover the monthly overheads and every permanent placement made is the profit for the business.
At Total Back Office Solutions Limited we provide our services to agencies providing all types of recruitment services and advise on the best way to provide the administration and funding support required. We can hopefully reduce the amount of cons shown and ensure that any agency see the pros from each type of placements.