Best Credit & Collection Practices for Staffing Companies
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” is unsecure. 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. Most likely, your company will recover pennies on the dollar if anything at all.
And unless your company has unlimited amounts of cash and internal resources, growth can be restrained due to lack of cash flow.
Key Takeaways of “Best Credit/ Collection Practices” for staffing companies:
· Reduce Risk
· Increase Cash Flow
· Save Money
· Save Time
· Retain a Positive Relationship
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 into a credit relationship with a company that may not have the financial wherewith-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 and 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 have signed the agreement. Plus, a formal agreement holds up much better in court if you ever have to go that route.
Follow Up
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. The quicker an invoice is paid; financing costs are kept to a minimum.
This is where a professional third party is key. This is a time-consuming process and not an easy call to make. A third party takes the time-consuming follow-up on invoicing off your plate and you retain a positive relationship with your client.
Bring in the Expert
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 the creditworthiness of a client.
Madison Resources solves these challenges and helps companies scale, profit, while reducing risk. Madison has the infrastructure built to support staffing companies from beginning to end:
· unlimited A/R funding
· credit evaluation
· invoicing
· collection support
· 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.
Technology 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.
Easily Analyze usage and payment trends and important information like a/r distribution, average DSO per customer etc. A third-party processor makes this information available 24 -7.
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, but your company will also be financially healthier and allow you to sleep easier at night.
We’d love to hear from you! Please contact Madison Resources for more information.
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