The way recruitment agencies work and the business model they follow makes them a pretty rare breed in the business world.
As well as mastering the core functions every business needs to succeed – from generating leads to closing deals – there are a whole host of unique processes that will typically be running in the background, such as invoicing, credit control, timesheet management, paying contractors and remittance.
One of the key decisions any boss of a recruitment agency needs to make is how they are going to manage their back office and all the vital systems and processes that are needed to run their business.
One increasingly popular option is to call on the services of a specialist all-in-one solution provider, who can help keep things simple by offering the complete package in one place. Such solutions cover everything from payroll to invoicing, compliance to cashflow. They also remove the need to source and land a finance deal.
Alternatively, there is the option to manage the back office inhouse, with or without calling on external support to outsource certain tasks, such as payroll. In this instance, an agency will typically pull together a range of different tools and resources. Checking such tools will integrate is therefore crucial. For example, making sure any accounting software integrates with the CRM; saving the recruiter time and ensuring personal information is correct and secure.
Relationship and pipeline management
One key element that straddles both the front and back office functions of a recruitment agency, is its relationship management system. In the beginning, you’ll be using it to build up your database and convert contacts into sales. Once this happens, a whole host of other back office processes then need to kick in.
A CRM – which stands for Customer Relationship Management tool – is a vital tool for managing relationships with both existing clients and candidates and also potential prospects.
Depending on the software you choose, a CRM can help you hold and organise all your important data in one place, while automating sales, advertising and vacancy processes and streamlining your tasks. It can help you keep track of job vacancies, CVs, client and candidate contacts. It can also help you record appropriate contact consent, which is more important than ever thanks to the arrival of GDPR. Overall, helping you ensure you never drop the ball and supporting a smooth and positive customer experience.
Time is money and staying on top of timesheets is one of the core systems any recruitment agency needs to get right. The more candidates you place, the more workload this will potentially create.
From reviewing and collating timesheets, to matching them to an invoice, it all takes manpower. Traditionally, timesheets would have been paper documents, but nowadays it is more common for this function to be delivered digitally. The main benefit of this being that you can record them, assign time to clients and projects and give approvals in just seconds.
It also makes it far quicker and easier for clients and candidates, enhancing their experience and means that as you grow, you avoid the need for an increase in staffing to cope with the additional paperwork.
Paying contractors is generally more complex than paying full time employees, thanks to the variation in hours being worked from week-to-week, timesheet management, rates, expenses, timesheet deadlines and client approval.
If you decide to manage the payroll function inhouse, then you need a system that will be compliant and efficient, and capable of scaling up with your growing business. It will need to integrate fully with your timesheet mechanism, as the better these functions work together, the less time it will take you and importantly, the less chance of errors being made.
Messing up someone’s pay or being late to pay will not do your business any favours. If issues regularly occur, or timesheet deadlines are missed or too rigid, then you’re going to struggle to retain candidates and that will waste a lot of time and effort.
With so many different elements to the business and all the different functions running simultaneously, it can sometimes be difficult to maintain overall visibility of what’s happening financially in your business and to see how you’re doing in relation to your targets.
A dashboard can provide you with a quick snapshot of the big picture, while providing easy access to analytics and key metrics. For example, you can check if you are hitting performance targets, as well as seeing who your top consultants are and spotting patterns that may better inform your future decisions.
By having this level of visibility, you will be able to quickly see the most important financial metrics, so you can identify issues to prioritise moving forward. This will enable you to direct your time, business development efforts and investment where it will be most beneficial for the business.
Due to the timescales commonly involved in how monies come in and out of a recruitment agency, most firms rely on having some kind of invoice factoring system in place. This means the business can borrow against unpaid invoices, freeing up the money needed to pay candidates, while waiting for invoices to be paid by customers. Typically, around 80-90% of an invoice’s value can be secured, with the remained needing to be topped up by the agency.
This isn’t a system that’s unique to the recruitment industry and can be quite inflexible, so it’s vital to get the best deal for the individual business. You need to know exactly what you’re getting into with any finance agreement and what it’s really going to cost you – i.e. it’s not just about the headline figure, there are many other factors at play. For example, make sure you understand the repayment terms, what penalties there may be, what the fees include and the full terms and conditions you’re agreeing to.
These types of deals need to be monitored closely and it can be hard for companies to keep track and know where they stand financially at any one point.
Credit control and credit checks
You may think throwing all your energies into signing up clients and getting contractors out earning is the most important thing for your business - but you’d be wrong. Getting paid by your clients is. If the money never lands in your bank you simply won’t survive, so ignore credit control at your peril!
Any delay in the payment of your invoices can cause serious issues if not managed correctly. But way before you’re in that position, you need a system for managing risk - checking that any potential clients will be able to pay you before a deal is agreed.
If there are issues, you then need a system for debt recovery. How will you resolve client disputes and achieve payment in difficult circumstances? Will you partner with solicitors to facilitate recovery? You may not want to upset clients, but the bottom line is that without money coming in, you have no business. Reduce your risk of that happening by identifying potential issues early and taking action.
There are certain insurance covers that recruitment agencies should consider. To ensure you’re covered, it’s important to have these in place from day one. You need to think about:
Legal and compliance
Recruitment agencies are tightly regulated and must comply with a series of statutory requirements, so it’s important to stay on top of the latest rules and regulations. How are you going to ensure you are meeting your legal obligations?
All agencies need to work within the rules set out by the Employment Agencies Act 1973 and the Conduct of Employment Agencies and Employment Businesses Regulations 2003. They cover everything from contracts to pay disputes and the writing of job ads. Agencies working within certain sectors will also require a license, for example, those in nursing, agriculture and food processing. There are also broader laws that apply, such as the Agency Worker Regulations (AWR) and Equality Act and the much publicised introduction of GDPR. All these requirements need to be understood and met.
A major change to IR35 rules, which will shift responsibility for deciding whether someone is classed as an employee to the end client, is expected to come into force in April 2020. This is one of the most important compliance issues currently facing the sector. Are you up-to-date on the changes and what the potential implications may be? How will you make sure you are compliant?
All recruitment agencies have an obligation to HMRC when it comes to compliance and in particular, their intermediary reporting. You need a process for managing this.
As an intermediary, you must send an Employment Intermediary Report to HMRC if at any time in a reporting period (i.e. quarterly) you provide more than one worker’s services to one or more clients you have a contract with.
If you don’t supply any workers in a specific quarter, then you must file a ‘nil report’ by the deadline date. The reports must be filed using HMRC’s reporting template and uploaded and submitted online.
Financial record keeping
Every business needs a system for recording their financial transactions and it’s important these records are accurate and up-to-date. There is a push by HMRC towards ‘making tax digital’ and it’s likely that within the next couple of years, businesses of all sizes will need to be keeping digital records and using software to complete tax returns.
Whether you have an inhouse accounts person or outsource your accounts, you need to be recording your transactions using reliable and trusted accounting software.
Running a recruitment agency is a complex process, with many unique systems at play. It’s important to get these systems right and to manage any risk, as ultimately this will impact on how well the business operates and the experience you provide for clients and candidates.
It’s a competitive market out there and reputation is everything, so there’s no cutting corners when it comes to presenting a strong, compliant and professional service.
How you decide to manage your core back office systems is up to you. If you plan to have a team pull together different tools and carry out the different processes, then remember to check that any software you go for will integrate and that you have the time and manpower needed to manage them.
Another important consideration is how you are going to deal with the implementation and ongoing management of all these different systems. Do you have the resources to do so? Or should you be outsourcing all these functions to a trusted partner?
Consider all your options carefully and make sure you’re moving forward fully informed and able to make the best decision for your business.