Risk & Reward in Recruitment
Updated: Jan 12
How do you mitigate the dangers and maximise the income when tackling a new business opportunity? We combined our technical expertise with finance insights from Scott Weddle, founder of Think Fast Finance, to bring you some answers.
The demand for specialist contractors remains high, especially in disciplines like finance and IT. Since a handful of these contractors can represent over a million dollars in payroll, contractor management offers a very attractive growth opportunity for recruiters. With the sweet comes the sour, and the potential reward goes hand-in-hand with risk.
Darren caught up with Scott to share ways that recruitment agencies can reduce the risk and maximise the reward when tackling this mountain of opportunity.
Recruiters are exposed to fairly specific risks when they manage contractors. Time delays need to be mitigated because any delay between the recruiter paying the contractor and the client paying the recruiter has a direct impact on the recruiter’s cash flow.
PlatinumWFM’s back office solution minimises delays: first, we chase contractors to submit their timesheets. Then we follow up on client approvals, and the moment those are done, our system automatically issues the invoice. Our Contractor Care team is critical to this process because human beings are much better at chasing up other human beings than any automated reminder.
Another necessity is meeting the tax and reporting obligations involved in paying contractors. Our system tracks taxable income and Super contributions, checking-off tax, reporting and governance requirements with as few opportunities for human error as possible.
If PlatinumWFM reduces the risks in the back office, what else can recruiters do to protect their business while expanding into contractor management? We asked Scott about other financial risks, and he highlighted two important issues:
#1 Exposure Risk
This happens when a recruitment agency is overly exposed to one client. What would happen to the recruiter if that one client suddenly couldn’t pay them? This is a very real risk so being prepared for it is important.
#2 Working Capital Risk
Running out of working capital is a major risk. This could result from exposure risk or because the recruiter did not fully understand their cash flow cycle. This cycle tells business owners what their current capacity is for growth. So, if a recruiter has ambitions to expand their revenue streams, it’s a great idea to get professional advice and plan for it financially.
Contractors are much more likely to choose a recruiter who takes good care of them. PlatinumWFM knows this, and both our Contractor Care Team and business system is designed to make the cycle of contracting, onboarding, and submitting timesheets as quick and easy as possible. A recruiter who takes equally good care of their contractors and clients is much more likely to have repeat placements and more secure revenue growth.
We asked Scott how recruiters can protect their new revenue stream. He replied at once: manage your exposure risk. If recruiters find it hard to spread their exposure among several clients, Scott recommends putting insurance and a backup finance facility in place. There are also two useful financial products to have in place before pursuing a new revenue stream.
#1 Invoice Financing
This is an ideal product for any recruiter who has already invoiced their client for payment and wants to leverage the value of the invoice for working capital. This is important when recruiters need to pay their contractors before their clients pay them - they may invoice the client and need to pay their contractors within a few days. This financial product releases the invoiced funds early allowing the recruiter to pay contractors and continue recruiting while waiting for clients to pay.
#2 Line of Credit
This is a credit facility that gives recruiters complete flexibility on how they spend the funds - they agree to the total credit limit and only pay interest on what they borrow. This is an ideal back-up facility that recruiters only access when needed.
Risk and Reward Roundtable
If you want to secure a new revenue stream in 2022, join us in January for our Risk & Reward Roundtable. We’ll bring together specialists in money, marketing, management and technology to share practical tips and tactics to grow your recruitment agency, especially if you manage contractors.
Simply register your interest here, and we’ll send you the details in the new year. We won’t contact you for anything else, we promise.
Disclosure: any advice and information in this article is general only and has been prepared without taking into account your particular circumstances and needs.