I had a coaching call with a client today whose business is going great guns.
Her team is growing and she’s recently taken on some resources via a recruitment agency.
However, something she said to me caused alarm.
Now taking on resources via a recruitment agency is an entirely appropriate thing to do, and something I’ve done in both large and small consulting businesses.
When you take on resources via an agency you’ll of course pay a fee. This is typically applied as a margin on the contractor’s day rate.
Be sure you know the difference between Margin and Markup as they’re different and you can end up paying more than you thought if you get it wrong.
The recruiter’s fee should cover the following services:
- Finding appropriate candidates from the recruiter’s database of contractors
- Advertising the position you have available
- Pre-screening candidates and shortlisting
- Managing the contractor’s invoices and billing (more about that below)
- Providing the contractor with a means to record time (timesheets)
My focus in this article is on invoicing.
My client was in a situation where:
- The contractor was invoicing her directly
- The agency was invoicing her separately for their fee
This is not a good situation to be in.
Because most contractors want paying weekly.
And most clients – your clients – expect to pay monthly, or perhaps on 90-day terms, or on set project milestones.
Regardless, the challenge for you is one of cash flow.
Understanding cash flow
If you’re paying your contractor weekly, and before your client pays you, then you have negative cash flow.
Even if you bill up-front, you’ll likely be subject to payment terms which means the money still takes 30 days or more to arrive.
The opportunity my client is missing out on is to have the recruitment agency bankroll the contractor.
What she should have done is agree payment terms with the recruitment agency that either match or better the terms she has with her client for that particular engagement. For example, if the contract with the client is payment on 90-day terms, then she should agree at least the same with the recruitment agency.
This is how I always structure my recruitment agency engagements. I don’t want to be paying 2 different invoices, and I don’t want to be paying for a contractor before I get paid.
Of course, such agreements require trust, and trust is built up over time. If you’re engaging a new recruitment agency, you may need to meet them half-way until trust is fully established.
If you have cashflow challenges – and every business does from time to time – you want to keep your cash for paying your employed staff, and for investing in your marketing and sales. You shouldn’t be compromising that to pay contractors.
You’re selling, not buying
We often turn to recruitment agencies when we’re in urgent need of resources. We fear missing out on a project opportunity and scrabble to put together a team. As consulting business owners we tend to forget that we’re the ones doing the selling as we’re so focused on selling to the client. We simply assume we’re in a food chain where we’re either buying or selling.
But we should be selling the opportunity to the recruiter, not simply buying their services at whatever rates and terms they offer.
Make sure you’re in the driving seat.
Utilise the benefits recruitment agencies bring and aim for win-win-win contractor engagements.
- The contract wins because he gets paid regularly and weekly by the recruiter
- The recruiter wins because they get the business from you – and one day your firm will be massive and you’ll need lots more resources – permie and contractor and you’ll want the support of a good recruitment agency
- You win because you get the right resource, at the right rate, and the recruiter bankrolls them for you (don’t forget that you are paying for this via the margin the recruiter applied, so don’t feel embarrassed or awkward about it!)