Closing the loopholes

Having strong process and contracts is the most important thing a recruiter can do to guard against non-payment. This ensures there are no loopholes or weaknesses the client can exploit in order to legitimise a dispute, making payment far more likely in the event of a disagreement.

Terms of business

We regularly see weak contracts that put the recruiter at a disadvantage by giving the client valid reasons for non-payment, but even the current terms available from the leading recruitment associations are not completely water-tight, putting the client in a stronger position than they should. 

Sterling’s website lists the main weaknesses with advice on tightening up TOBs (Terms of Business). Ideally you should have a professional check your TOBs to make them water-tight.

Ensuring your Terms of Business are incorporated

Make sure your TOBs are put in place correctly so that the client cannot use the excuse ‘we did not agree a contract’. It’s a common misconception that by emailing their agreement along with the CV it means that a contract is legally in place. When dealing with a new client and even a new vacancy, you should always email the client your TOBs separately with a cover letter or cover message before sending details of any candidates. This provides a clear separation between formation of the contract (incorporation of terms) and performance of the contract (an introduction). Provided the client does not respond stating they do not agree with your terms, or offering alternative terms, then your terms of business should then apply and you can proceed to performance (introductions). As a belt and braces approach, we also recommend an email footer with a hyperlink to your terms on all outgoing email. 

Complying with regulations

All agencies must comply with the Employment Agencies Act 1973 (the Act) and the Conduct of Employment Agencies and Employment Businesses Regulations 2003 as amended in 2010. The regs include requirements that are quite onerous; for example, regarding consent from candidates and where the role involves working with the vulnerable. You should understand the requirements, how to comply with them and the risks of any non-compliance being used by your client to avoid payment.

Check your client

You should know which legal entity you’ll be doing business with so it’s clear who is liable for your fee. In most cases you will be contracting with a limited company. You can check company details free of charge including ownership and accounts at Companies House. 

Whilst Companies House will show you if a business has been made insolvent or has a winding up petition against it, it does not show whether a company has court judgments against them. You can check this online for a small fee at Registry Trust. Alternatively, you can subscribe to a credit checking agency from a few hundred pounds per year. This will give you access to more information and will allow you to automatically monitor your clients for adverse changes.  

Discounted rates and rebates/replacements

When offering a discounted rate it should be made clear in writing that the discount will only apply if the client makes payment by the payment date. 

If the client breaches your terms through non or late payment then you have the right to charge the higher rate. Also, no rebate or replacement is due should the candidate leave.

Invoice promptly, and check it’s been received

The sooner you invoice, the sooner you get paid. It’s good practice to follow up your invoice with a call shortly after sending it to ensure it’s been received by the correct contacts, and to confirm that all is in order (for example, do you need to send it to the accounts payable department or someone to authorise it, does it need a PO number?). 

Chase payment early and regularly

You should have a standard chase process in place to be followed consistently. Phone calls are the best method for securing payment, but should be backed up by emails to confirm actions agreed on the calls, and reminder emails at set points. 

Sterling’s website includes letter templates which can be used in your chase process, including reminders, final demands, and templates to handle common disputes such as temp to perms, back door hires and rebates. 

Many recruitment agencies use a form of invoice financing where the finance company chases payment. If your finance company is not getting you paid promptly then you may need to chase the invoices in house, or use an outsourced credit control service such as Sterling’s. You may also wish to consider moving to a different type of facility whereby the finance company funds your invoices but does not take on responsibility for chasing payment. These facilities give you more control and are more cost effective.

Handle disputes calmly and professionally

When a client refuses to pay your fee, it’s easy to assume that they are deliberately cheating you out of payment. Sometimes, however, the client can genuinely misunderstand their responsibilities under the TOBs. You should explain the situation in relation to the contract clearly and calmly so the client understands their obligations.

Even if it’s obvious the client is deliberately avoiding payment, you should remain courteous and calm. An emotional debtor may continue to refuse to pay through principle even if they do come to understand that they are legally liable under the terms. 

Add late fees

Under the Late Payment Act you are entitled to add late fees and interest to invoices past their due date. See the Late Payment Fee calculator in the tools section of Sterling’s website. 

The Act also allows for addition of ‘reasonable costs’ of collection. These can only be added if you opt to engage a third party debt collection agency to collect the debt.

If your terms include contractual interest rather than referring to the Act then you should check to ensure that the rates/fees are not lower than could be added under the Late Payment Act.

Escalate promptly

The longer an invoice goes unpaid, the less chance of it ever being paid. Escalating the debt to a third party debt collection agency removes the stress and allows you to focus fully on core business. Specialist agencies understand your TOBs inside out, know how to persuade your debtor to pay and get quick results. In most cases the addition of late fees under the late payment act means that the debtor effectively pays for the debt collection service. 

Sterling Debt Recovery specialises in the recruitment sector, providing commission only debt collection, back door hire searching, legal services and outsourced credit control.