Rise in insolvencies for recruitment agencies

Insolvencies of UK recruitment agencies have increased by 14% in the last year from 363 in 2022/23 to 413 in 2023/24.

This is the third consecutive year of increases, according to research by Mazars, an international audit, tax and advisory firm.

A recent slowdown in hiring across the UK has made it tough for some recruiters to stay in business. The number of UK vacancies decreased to 932,000 in the three months from November 2023 to January 2024, compared to 1.14m vacancies over same period 12 months earlier.

Last year the number of people who switched jobs in the UK fell 10%, from 3.92m in 2021/22 to 3.58m in 2022/23. Rising interest rates mean many businesses cut back on hiring, Mazars said.

Some recruiters in the temp market can have weak cashflow as they have to pay contractors before clients pay them. Similarly, recruiters will often have to pay out large salaries to their senior team members before they are paid by the client. A weakening economy will almost inevitably see clients delay paying suppliers.

The slowing of the recruitment market is seeing more recruiters struggling to service the debt that they took on during the pandemic. Many saw their income drop off to near zero during lockdown, forcing them to take out government-backed BBLS loans (Bounce Back Loan Scheme) to survive. Some are now unable to make repayments on these loans, forcing them into insolvency, according to Mazars.

Rebecca Dacre, partner at Mazars, said: “The recruitment market can be notoriously cyclical. The latest figures shows that many recruiters are now really struggling. Many are at risk of insolvency as they deal with substantial debt burdens and weak cashflow.”

“As the jobs market has slowed significantly over the last year, some recruitment agencies just haven’t been able to cover what can be the sizeable costs of debt and payroll. Until the economy picks up, we’re likely to see this trend continue.”

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