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  • Writer's pictureNick Andriacchi

Reduce Risk, Improve Cash Flow & Sleep Better At Night

Staffers are not bankers. So why act as a bank by allowing your customers to have 70 to 90 days to pay labor invoices? There may not be tellers in your office but make no mistake, the longer invoices are outstanding, the more of a bank your company becomes.



Worse yet, your “loan” (unlike a bank loan) is unsecured. In other words, if any of your customers file for bankruptcy or bankruptcy protection, you are last on the list of creditors to be paid. Secured lenders are first to be paid, followed by bond holders etc. Most likely, your company will recover pennies on the dollar if anything at all. The longer the invoicing is outstanding, the more dollars your company has at risk. Not a great position to be in.


And unless your company has unlimited amounts of cash, financial obligations and growth can be restrained because of lack of cash flow.


The following paragraphs discuss the some “best practices” processes and procedures that allow staffing companies to increase cash flow, reduce risk, save time and focus on their core business.


Due Diligence

Start with a 10,000 ft. view. What niche industries are you marketing to and what types of jobs created in those industries? What are the long-term prospects for domestic growth? Are these companies, the products they produce or the services they offer becoming obsolete? If the answer to these questions are generally positive, then start your due diligence process on the individual prospects.


Onsite Visits

Draw on you experience as a shopper. Have you ever walked into a retail store and seen empty shelves, disorganized merchandise and few employees? What was your impression of that business?


A business needs to at least appear vibrant in order for it to succeed and more importantly pay its labor invoices. An on-site visit to a warehouse, factory, medical facility or office can often times give you clues as to how well the business is run and how financially viable it may be.


Once the onsite visit is complete, start gathering financial information.


Credit Analysis

Before negotiating terms, you need to have some information on the financial strength of your customer. Obviously, there is no sense in entering a credit relationship with a company that may not have the financial where-with-all to pay its bills.


Start with a third party that provides business data like Dunn and Bradstreet. If your lender specializes in the staffing industry, they may have specific customer payment information that is like gold! If those resources are not enough, obtain bank references and/or corporate financials.


Agree to Terms

Once due diligence is complete have the customer sign a service agreement with the agreed upon terms. Having the terms written on the back of the time sheet is not enough. It is easier to get the customer to comply with terms when you have them in writing and both parties signed the agreement. Plus, a formal agreement holds up much better in court, if you ever have to go that route.


Post-Sale

Stay in control of the collection cycle. Follow-up - just like you do in the sales process. Create a credit cycle. Simple things like scheduling calls to receive a status update of payment and continuing on-site visits will help keep your company visible and the payments timely.


Keep the client engaged and make them part of the solution. Open lines of communication are keys to getting paid. For example, offer the client payment options like electronic transfer of funds. Once communication breaks down, the collection process becomes much more difficult.


If payments continue to be past due, consider charging a late fee. It gives you something that you can “waive” for timely payment.


If follow-ups and late fees don’t work, try reducing the amount of staff or billable hours until payments become current. If all else fails, pull your contractors from that account and start the legal process. That is an action of last resort, but you need to limit your credit exposure.


An annual review of each account within your portfolio should be conducted. One component of the review is focus on invoice amount and payment trends. Analytics should include: What percentage of the total accounts’ receivable does each account represent? Are the total dollars outstanding more than originally projected? Are they within terms? Have payments slowed over time? Just to name a few.


Outsource Technology, Credit Analysis & Support

Most small to medium sized staffing firms do not have the capital or time to carry slow paying invoices. Additionally, internal staff, processes and credit reports are pricey. Besides, analytics are best performed by a third-party as they can be more objective in determining credit worthiness of a client.


Staffing companies may want to look at alternative financing sources that provide maximum cash flow and valuable credit services. A company like the one where I am currently employed, has an infrastructure built to support staffing companies from beginning to end: credit evaluation, invoicing, collection support and payment processing. Besides, having a professional third party involved in the collection process gives an independent staffing company more leverage in collecting past due labor invoices.


The technology piece is a must. Information needs to be on-line and easily accessible. Invoicing and payment options need to have an electronic component built-in with client accessibility.


The Pay Off

Once your new credit procedures are in place, you will not only save lots of money by reducing annual write-offs and collection costs, your company will be financially healthier and allow you to sleep easier at night.

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