The credit crunch left no sector untouched. However, the recruitment industry was one of the first to be hit as companies enforced a headcount freeze to cut costs.

Hilton-Baird Financial Solutions’ six monthly SME Trends Index reveals that the recruitment industry was given a head start in its recovery, though. As the economic climate started to improve, businesses began to see the benefits of employing temporary staff as a way of dealing with the turbulent financial times.

The survey, which questioned 717 business owners and financial directors during the first week of November last year, revealed that the recruitment sector made huge strides during the second half of 2010. In addition to 70% of recruitment firms recording an increase in turnover in the preceding six months, a staggering 85%

won new contracts in that period.

During an erratic economic climate, there are a number of contributing factors to the recruitment industry’s success. Yet one of the main drivers is undoubtedly the type of funding that recruitment businesses have opted to secure.

Interestingly, Hilton-Baird’s survey revealed that one of the most utilised forms of funding among these firms was invoice finance. As many as 46% of the recruiter respondents use solutions such as factoring and invoice discounting, with a much lower proportion admitting to using bank overdrafts and credit cards (both 35%). This is particularly promising when you consider the added risks involved with the latter two options.

This contrasts favourably with the 44% of the total respondents across all industry sectors who reported using credit cards as a source of funding, while an even higher percentage (49%) use overdrafts. Across the board, only 19% of total respondents are using invoice finance.

The recruitment industry’s choice of funding has clearly been a strong influencing factor on its success. The survey also showed that 8% of recruitment businesses have credit insurance in place for added security, compared to just 4% of total respondents.

During these turbulent economic times, it is promising that businesses are recognising the benefits of exploring a variety of solutions in order to keep their finances and debt under control.

So what does this all mean for the coming year? A promising 58% of recruitment businesses expect their business to expand in the first six months of 2011 - significantly higher than the 45% of total respondents anticipating growth.

While this indicates a brighter future for recruitment businesses, predicted rises in interest rates and inflation in 2011 mean businesses should remain vigilant. Beneficial in times of increased demand, invoice finance additionally excels at assisting businesses in challenging trading conditions such as these as the funding grows in line with turnover. It is no coincidence that recruitment firms have done so well.

Evette Orams is managing director of Hilton-Baird Financial Solutions
www.hiltonbaird.co.uk/fs