For the hard-hit recruitment sector, a slowdown of cashflow has been a lingering symptom of the recession, as ’pay when paid’ clauses have crept into

arrangements to supply workers through third parties, and risk-averse financiers have put the stopper on what had been virtually a free flow of funds to recruiters.

End users faced with cashflow problems in their businesses have sought more relaxed payment terms with their third party suppliers, such as recruitment process outsourcing organisations/managed service providers (RPOs/MSPs), meaning that pay to the third parties may be delayed. Payment is then delayed to the labour suppliers - the recruiters - but under their own contracts with the third parties, the recruiters are often prevented from contacting the end user to pay.

A couple of years into this vicious circle, there’s been relatively little movement toward sorting out the uncomfortable complexities for any of the parties involved. However, a ray of hope emerged from an 11 March event hosted by the Association of Professional Staffing Companies (APSCo) and the Asset Based Finance Association (ABFA) to debate the challenges and potential solutions to the problem: of the 160 participants, 77% agreed that a workable code of conduct could be drawn up for recruiters, RPOs/MSPs and end users to formalise behaviour in the marketplace.

And virtually all of the group (99%) went on to give APSCo and ABFA a mandate to continue to lead the drive for a solution.

“I don’t think we’re miles apart,” Kate Sharp, ABFA’s chief executive, said of the positions of the various parties involved in the problem. Speaking to Recruiter after the event, Sharp said she “totally understood” that MSPs and RPOs were reluctant to take on additional risk in the current climate by paying their suppliers before they themselves were paid.

However, she suggested that “it’s only fair for them to accept some risk; it’s not fair for all the risk to go elsewhere”, and urged them, the third parties, “to show a degree of concern for the suppliers” and for the “benevolent end user to maintain that degree of concern”.

While the group vote at the end of the debate supported the creation of a code of conduct to govern the practices of all involved parties, Sharp favours a slightly more subtle approach. “What we’re looking for is a charter of understanding,” she said. “The continuation of supply is essential for everyone, and the continuation of finance is essential for the continuation of supply.”

Audience members at the event, chaired by APSCo CEO Ann Swain, were cautiously optimistic about the way forward. Phil Clarke, managing director of retail recruiter Invenio, told Recruiter: “Ultimately, I think the way it will play out … is that eventually the RPOs will move away from this ’pay when paid’ model to a large degree as they are able to secure their own funding with more established, understood business models. At the very least sensible back stop arrangements will come in.”

Said Graham Bird, audit manager of the Hilton-Baird financial broker firm: “The event reflected the broad consensus that something needs to be done to rectify this issue once and for all… Finding a way to enable funders to sustain the provision of finance to this sector - particularly when more traditional forms of funding, such as overdrafts, are not so readily available - is crucial.”

Bird went on to point out that the Hilton-Baird’s SME Trends Index in November 2010 showed that 46% of respondents from the recruitment industry were using invoice finance to fund their businesses. “This … highlights the potential magnitude of the issue at a time when this funding is vital to ongoing recovery,” he said.