How to Protect Your Recruitment Business Against Rising Insolvencies

Uncertainties over Brexit have created an unstable environment for businesses across the UK. Recent statistics show a 2.2 per cent rise in insolvencies between July and September 2018[1], placing UK insolvencies at their highest level since Q1 2014.

The risks to your company

• Unpaid invoices

The main threat to recruitment companies comes from outstanding invoices. The liquidation of a single company can have huge and widespread effects on all the businesses it deals with. But for recruiters, effects resulting in unpaid invoices and termination of temporary contracts can be particularly hard to recover from.

As a recruitment company providing contracted and/or temporary labour, it is often necessary to pay your workers’ wages before receiving full payment from the client. This makes you highly vulnerable in the case of insolvencies. 

Did you know that by law you are obliged to pay your contractor for all completed work, even if the client invoice is left unpaid?[2]

• Stockpiling

The threat of a no-deal Brexit has seen some companies stockpiling goods. This could have unexpected effects on recruitment companies.

By stockpiling goods, buying companies are actively reducing their cash-flow. With more money tied up in goods and storage costs, the risk of buyers defaulting in their obligations to pay back recruitment companies is far greater.

However, with the right insurance measures in place, the risks of possible non-payment are something you can prepare for.

What is Trade Credit Insurance?[3]

Trade Credit Insurance covers businesses in the event that outstanding invoices for products or services are left unpaid. This generally covers two types of risk:

• Commercial

Protecting against the risk of unpaid invoices due to financial problems or declared insolvency on the client side.

• Political

Protecting against the risk of non-payments due to political events outside the client’s control (e.g. war, natural disasters, economic difficulties).

With Trade Credit Insurance in place, businesses can have the confidence to continue extending trade to other clients, even in the event of client insolvency.

How does this differ from Bad Debt Protection?

Most recruitment companies will have some form of ‘Bad Debt Protection’ policy in place. However, using a standalone credit insurance policy can not only provide greater coverage and flexibility, but also a better price. This is because credit insurance policies are VAT exclusive, meaning that even if you find BDP matching your policy, the limits will still provide an extra 20% cover.

For more information about Trade Credit Insurance, contact Jelf.