As a recruitment agency owner, your success relies on placing the right candidates in the right roles. But what happens when a client doesn’t pay their invoices on time? Or worse, not at all?
Late payments and bad debt can seriously impact your cash flow, stopping you from paying your temps, and investing in growth – plus it’s really stressful!
That’s where credit control comes in. It’s an essential function that often gets overlooked but can make or break your agency’s financial stability.
Here are a few red flags to keep an eye out for, to help protect your agency:
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Negative Payment History
This is a major red flag! Late payments, defaults or collection actions indicate a history of financial difficulties and unreliable payment practices. Pay close attention to the frequency and severity of these negative entries.
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High Credit Utilisation
This refers to the amount of credit a company is using compared to its available credit limit. A high utilisation ratio (usually anything over 50%) suggests the company is overleveraging, making the business more vulnerable when economic downturns happen. It can also suggest that a company is struggling to manage its debt.
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Significant Changes in Credit Score
A sudden drop in credit score could signal a deterioration in the company’s financial health, such as a decrease in revenue, increased debt or legal issues.
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Multiple Credit Inquiries
If a company has made multiple credit inquiries in a short period, it could indicate a desperate need for funding, which may be a sign of financial distress.
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Negative Public Records
Bankruptcies, CCJs, or other legal actions can severely impact a company’s creditworthiness and indicate significant financial problems.
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Length of Credit History
A short credit history makes it difficult to assess a company’s payment patterns and financial stability. Newer businesses therefore pose a higher risk.
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Inconsistent or Incomplete Information
Discrepancies or missing information in the credit report could raise concerns about the company’s transparency and financial reporting practices.
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Industry Trends and Economic Conditions
Consider the overall economic climate and industry-specific factors that may impact a company’s financial health. For example, a company in a declining industry may face higher credit risk.
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Management and Ownership Changes
Significant changes in management or a complicated ownership structure could signal instability or a shift in the company’s financial strategy.
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Poor Communication
A company that’s difficult to reach or evasive about its financial information isn’t a good sign. If you have that niggle in the back of your mind that something isn’t right, then dig further.
What To Do When You Spot Red Flags
- Proceed with Caution: Don’t ignore them! Conduct further research and due diligence before extending credit or entering into a business relationship.
- Request Financial Statements: Ask for the company’s latest financial statements to gain a deeper understanding of its financial health.
- Negotiate Payment Terms: Consider requiring upfront payments, shorter payment terms or offering discounts for early payment to offset some of the risk.
- Limit Credit Exposure: Set credit limits and monitor them closely to avoid overextending your agency.
- Outsource Credit Control: Entrusting credit control to experts like New Millennia allows you to focus on your core business while minimising financial risk.
Outsource the Hassle of Credit Control to New Millennia
When you choose to outsource your back office functions to us, you get a team of expert credit controllers who have the knowledge and experience to:
- Conduct Thorough Credit Checks: We assess the financial health of your clients, identifying potential risks before they become problems.
- Establish Clear Payment Terms: We ensure your clients understand their payment obligations and deadlines.
- Generate and Send Invoices: We handle the invoicing process, ensuring accurate and timely billing.
- Monitor Payments: We track payments and proactively follow up on overdue invoices.
- Resolve Payment Disputes: We work with your clients to resolve any payment issues quickly and respectfully.
Protect your recruitment agency’s financial health with our back office solution, designed to help you thrive and grow.
