Without question debtor days have increased. It can be a case of ‘you either trade with us on these terms or you don’t trade with us at all

According to the latest Economic Downturn Panel survey carried out by the Forum of Private Business (FPB), almost a quarter (23%) of respondents claimed late payment and, subsequently, poor cash flow was the ‘key issue’ for their business.

Tom Atkinson, managing director at recruitment finance provider Cash Simply, told Recruiter that debtor days across a range of industry sectors have increased from “about 47 days” before the credit crunch to 53.6 today. “In the temp market it’s going to kill many agencies because they have to pay the temporary workers before they get any money. Typically agencies are paying out 80% of their wages before they get paid themselves,” Atkinson warned.

Construction recruiters such as Martin Makinson, director at Bromak, are among the recruiters who have borne the brunt of this debtor day rise.

He told Recruiter: “Without question debtor days have increased. It can be a case of ‘you either trade with us on these terms or you don’t trade with us at all.’ Certain companies are extending payment terms.”

Recently, the FPB also published its late payment ‘Hall of Shame’, which included construction firm ROK, United Biscuits, Argos, Diageo and InBev UK among others.

ROK released a statement to Recruiter in which it said its standard terms with new suppliers was now 60 days, up from the previous 30. A spokesperson for brewery company InBev told Recruiter that the recession had forced it to negotiate terms of payment to 120 days. “We value greatly the suppliers that we work with,” the spokesperson said. “It may take time for some of the suppliers to get used to the new system but we will do what we can to help them with the transition.”

Atkinson said that the most obvious solution is for agencies to tell clients that late payment is simply unacceptable. However, he accepted that this was not always a realistic option, particularly in the current recession.

Those recruiters looking to the law for help are likely to be disappointed, said Kevin Barrow, partner at legal firm Blake Lapthorn.

Barrow described the current legislation under which businesses can charge interest if they are not paid promptly as ineffective, as suppliers are not concerned with interest but rather cashflow.

He added that a key issue is the ‘pay when paid’ clauses instigated by managed service providers (MSPs), which cause a funding gap as recruiters may have to wait up to 30 days to be paid due to the MSP not being paid themselves.

Barrow said that because a large number of individual recruiters rely on MSPs, the knock-on effect of an MSP not being paid on time can be severe. He suggested that a new contracting model was necessary. This gets around the ‘pay when paid clause’ because if the MSP is not paid, the agencies have a direct claim against the end user.

For the time being, Bromak’s Makinson uses credit checking agencies to determine who he should be trading with every month. “We are completely risk averse before taking risks on clients because otherwise you get your fingers burned,” he said.

Despite the signs that the economy is improving, recruiters’ very existence continues to be threatened by cash flow. While the law offers little help to agencies, recruiters can secure their future by being pro-active so they can take advantage of the recovery when it comes. Failing that, they have the choice of walking from a contract that will do them more damage than good.