Recruiters report growth but poor back office management and cash flow could prevent sector boom
Three quarters of respondents have witnessed increased demand in the jobs market for temporary and contract work with the retail, manufacturing, construction and healthcare sectors most in demand.
However, the data, by Hitachi Capital Invoice Finance, questioning over 100 managing directors of temporary recruitment firms, shows that while the recruitment sector is growing, business owners are spending too much of their time on back office administration. Sixty three per cent highlighted that this was their most time-consuming task and nearly half of respondents cited that 50 per cent of their time is spent on approving timesheets, producing invoices and managing payroll. Despite this taking up a large proportion of time, a third of owners are yet to invest in external support systems to relieve some of the pressure.
Half of managing directors also said that investing in back office functions will play a key role in the future success of their businesses. One in ten agreed that a lack of infrastructure investment is the reason most recruitment firms fail.
John Atkinson, head of commercial business at Hitachi Capital Invoice Finance, said, “The potential growth of recruitment firms is being hampered by a lack of investment in back office functions. The sector is growing but in order to capitalise on this, companies need support with flexible cash flow solutions and payroll systems.
“Having an efficient back-office function in place such as a product that takes care of cash flow and removes the administrative burden recruitment businesses are often loaded with, allowing owners to focus on the day job of growing the business.”
When questioned around the challenges they faced when starting up the business, 78% of owners agreed that establishing a client base is the biggest, with over a third (38%) citing overcoming cash flow problems. In terms of establishing a successful business, over 50 per cent of managing directors agreed that possessing an ability to forecast demand and managing cash flow are pivotal.
Atkinson said, “It’s not uncommon for recruitment firms to struggle with cash flow, especially those placing temporary candidates. Many recruitment businesses find themselves in a chicken and egg situation as they wait for payment from business customers yet contract staff require payment much earlier than the usual business payment terms of up-to 60 days. This leaves the firm too cash poor to cover day-to-day costs and is particularly detrimental for start-ups as they simply cannot get off the ground.”
Nearly three quarters (68 per cent) have seen competitor recruitment companies close over the past twelve months.
Atkinson added, "To truly take advantage during periods of increased demand, recruitment firms require a flexible cash flow to cover running costs and pay candidates on time. Too many firms fall at the first hurdle as they are unable to find a solution to safeguard their future financial position and expand the business.”
To help start-up recruitment firms, Hitachi Capital Invoice Finance has created a downloadable guide on overcoming the challenges in the recruitment industry.