Trade credit insurance: protecting your recruitment business

This is a guest blog by REC business partner Marsh Commercial.

As 2023 drew to a close, the job market saw a noticeable decline. According to the Office for National Statistics (ONS), vacancies from September to November totalled 949,000, a decrease of 45,000 from June to August 2023.[1] While these figures remained considerably higher than pre-pandemic levels,[2] they indicated a discernible downward trend.

The recruitment industry faces ongoing challenges. Macroeconomic and UK labour market conditions are making it more challenging than ever for small and medium-sized businesses to find, successfully hire, and retain the right people in the right roles. According to the August 2023 CIPD Labour Market Outlook,[3] two-fifths of UK employers had hard-to-fill vacancies.

Adding to this, 30,199 UK businesses were involved in some kind of insolvency action in 2023, which is 52% higher than in 2021, according to Creditsafe.[4]

This raises concerns about client payments. Potential delays or non-payments could severely affect a small recruitment business. Recruiters involved in contracting or hiring a temporary workforce may find their business growth restricted if they encounter lengthy waits for invoices to be paid. A trade credit insurance policy offers peace of mind, protects your money, and reduces obstacles to your cash flow should a customer fail to pay.

Risks for recruiters

The retail, manufacturing, and construction industries have been hit by financial struggles recently. ⁵ Statistics show construction firms suffered 4,276 insolvencies in the 12 months ending 30 September. They were followed by 3,777 wholesale and retail businesses, 3,477 administrative and support services and 1,911 manufacturing companies. What’s more, the number of business insolvencies per quarter is expected to increase in 2024 to around 7,000 per quarter.⁶  Recruiters in these sectors may find they’re left with unpaid invoices, or customers may need more time to pay. Protecting against risks

Financially troubled companies may struggle to fulfil pre-existing contracts, resulting in recruiters facing delayed client payments or potential bad debts if clients can’t settle invoices due to insolvency.

Such situations, especially for businesses that pay employee wages before receiving invoice payments, can lead to significant financial difficulties, even jeopardising their survival.

Trade credit insurance offers a safeguard, ensuring that unpaid invoices for services on credit are settled when a client faces insolvency. Additionally, it serves as an early warning system for recruiters and assists in evaluating the financial health of new customers.

Why is trade credit insurance important?

Trade credit insurance is necessary for recruiters to safeguard against financial and staffing risks. This protection ensures that any outstanding invoices for credit services get paid, even when a customer is in financial trouble.

Trade credit insurance benefits include:

• Financial Security - safeguards against client payment defaults, ensuring steady income.
• Business Continuity - protects against unexpected client insolvencies, minimising disruption.
• Risk Management - helps assess client creditworthiness, reducing bad debt risks.
• Competitive Edge - offers flexibility in payment terms, attracting more clients.
• Improved Cash Flow - ensures consistent cash flow, enabling growth and expansion.
• Enhanced Borrowing - enhances creditworthiness, facilitating access to financing for business growth.

Find out how you can transfer the risk of unpaid invoices to your insurer by speaking to our preferred insurance broker, Marsh Commercial, who provides specialist insurance for REC members.

Call the team on 0330 818 7634 or email them at rec@marshcommercial.co.uk

[1] https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/jobsandvacanciesintheuk/december2023

[2] https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/jobsandvacanciesintheuk/july2022

[3] https://www.ciphr.com/features/recruitment-challenges/

[4] https://www.theguardian.com/business/2024/jan/06/uk-businesses-going-bust-covid-brexit#:~:text=A%20total%20of%2030%2C199%20UK,430m%20businesses%20around%20the%20world.