Written by Marsh Commercial
Many employees see the New Year as time to consider a new role, so now is the time for recruiters to reap the benefits.
However, recruitment agencies have faced challenges recently – such as redundancies within the sectors they service — reducing recruitment activity and insolvencies resulting in uncertainty about customer payments.
These delays or non-payments could have a disastrous impact on recruitment companies, which is why a trade credit insurance policy is essential.
What are the risks?
Recruitment companies working in sectors that have been badly hit by financial struggles or insolvencies, such as retail, manufacturing, and construction, may find they’re left with unpaid invoices.
Customers could take longer to pay their invoices if they’re operating at lower levels, for example, when demand has fallen. They may not be able to pay at all if they’re on the verge of closure but already have contracts with a recruitment agency.
Thousands of businesses have gone bust in 2023 due to challenges such as higher costs, inflation, and falling sales. More firms are set to follow suit, particularly now that COVID-19 loans and support schemes have been phased out. This would impact the number of companies that need to use the services of a recruitment agency and should be a key consideration.
The Insolvency Service said there were 6,208 registered company insolvencies in England and Wales in the three months before the end of September, 2023.
According to the official figures, construction firms in England and Wales suffered the highest number of insolvencies (4,276) in the 12 months ending 30 September. This was followed by wholesale and retail (3,777), accommodation and food service activities (3,477), administrative and support service activities (2,282), and manufacturing (1,911).
Struggling firms could be unable to fulfil contracts that existed before the company’s troubles. This would leave recruiters waiting longer for client payments or with bad debt when the client can’t pay invoices due to insolvency.
For employment agencies paying wages ahead of receiving invoice payments, these delays or non-payments could create substantial financial distress and even put the business at risk of going bust.
Challenges for the job market
However, not all companies were on the verge of collapsing, with some able to afford higher salaries for staff. Despite evidence of a cooling labour market in 2023, pay growth was at 7.8%–the highest since records began in 2001.
Many employers had to offer higher starting salaries and increase pay rates to find the candidates they needed, adding to the financial burden on businesses.
The latest employment figures show that vacancy numbers fell for the 16th straight month in the three months leading up to October 2023, with vacancies falling in 16 out of 18 sectors.
Despite the number of advertised posts declining during the summer, vacancies fell by 45,000 to 949,000 from September to November 2023 according to the Office for National Statistics, figures indicate that there’s still demand for recruiters to help fill vacancies.
The ONS said 10% of companies in late October 2023 reported staff shortages, which was only slightly down on the 13% of businesses experiencing worker shortages in late May.
There are calls for the government to act on staff shortages by supporting employers through childcare, training, and other benefits. This would likely strengthen the labour market and improve recruitment activity.
Trade credit insurance is key
When considering companies’ financial and staffing risks, trade credit insurance is crucial to protect recruiters against potential non-payments.
Trade credit insurance could guarantee that any unpaid invoices for services on credit would be paid when a customer is facing insolvency.
Providing an early warning sign for recruiters, this type of insurance can also be used to check out the financial wellbeing of new customers. You can utilise the insurer’s credit intelligence and grading systems.
Key takeaways
A trade credit insurance policy safeguards recruiters from unpaid invoices and customer insolvencies.
The benefits include:
- Protecting against non-payment for services provided on credit terms.
- Securing funding by insuring your debtor book – a key asset for many recruitment companies.
- Providing peace of mind when trading in new markets.
- Using credit insurers’ customer information to support credit management and sales.
- Supporting growth with the ability to extend payment terms to more customers.
Find out about how you can transfer the risk of unpaid invoices to your insurer by speaking to Marsh Commercial. Marsh Commercial has been providing insurance solutions for recruitment businesses for over 40 years, so understand the unique challenges and insurance risks you face within the recruitment sector. Why not get in touch to see how they can help you via 0161 245 1220 or www.marshcommercial.co.uk/for-business/recruitment.
Marsh Commercial is a trading name of Marsh Ltd. Marsh Ltd is authorised and regulated by the Financial Conduct Authority for General Insurance Distribution and Credit Broking (Firm Reference No. 307511). Copyright © 2024 Marsh Ltd. Registered in England and Wales Number: 1507274, Registered office: 1 Tower Place West, Tower Place, London EC3R 5BU. All rights reserved.
