Nine strategies for managing client payment behaviour

Late payments put recruitment firms at risk.

Negotiating fees and rates is a critical part of the job of any recruiter. It is vital to ensure your business is being paid fairly for the services you provide, whilst delivering the best value for money to your clients. But negotiating fees is only a part of the challenge, securing payment is another, and the payment behaviour of clients can vary significantly across the UK. This can be due to industry norms and company policies, ongoing challenges in the operating environment and, in some cases, clients themselves waiting to be paid by their own supply chain.

Late payments put recruitment firms at risk. They have a significant impact on cash flow and, if the client goes into administration or liquidation, there is a risk the money is lost completely. 

The REC and Kahvay have joined forces to help you negotiate your way to better terms, and ensure your business is working on as sound a foundation as possible in this challenging business environment.

Kahvay are specialists in negotiation for global recruitment and human capital companies with a mission to bring skilled negotiation to our industry.

Advocating for the value of our industry.

When engaging in initial negotiations with a client, recruitment businesses can face pressure to lower fees to beat the competition – and in a challenging market, this can be tempting. It is always a balance of advocating for your business whilst meeting client demands. But the reality is negotiating fair terms is key to preventing a race to the bottom on fees and ensuring the industry is not taken advantage of by clients who do not appreciate the significant value (and savings) working with high-calibre recruitment partners can add to any business.

The REC’s Aim Hire guide makes the case for the value strong recruitment relationships can add to businesses of all sizes and sectors, demonstrating how businesses can maximise the benefits of the recruitment industry’s unique positioning, knowledge and professionalism.

Common payment challenges.

Though it will vary company to company, there are trends we hear from our members on client payment behaviour.

• Extending payment terms: Standard payment terms typically range from 30 to 60 days, though it is not uncommon for some clients to push for longer terms, especially larger businesses and those with more complex procurement procedures.
• Late payments: This remains a persistent challenge for our members. Late payments strain cash flow, impact business operations and reduce resource available to invest in staff. This challenge is particularly acute for recruiters on the temp side.​​​​​​
• Supply chain constraints:  In certain sectors with complicated supply chains, recruitment businesses feel the pinch of late payments further up the chain, impacting their clients’ ability to pay promptly.
• Renegotiating after the fact: In some cases, there can be fee disputes further down the line. Clear and robust Terms of Business are essential for mitigating this risk, as well as having any relevant credit or legal insurance.
• Legal and administrative costs: Chasing late payments can incur additional administrative and legal costs for a business already operating with constrained cashflow, diverting resources from other important business activities.

The best defence is a good offence.

Here are nine strategies to help you manage client payment behaviour upfront to help mitigate risks down the line.

1. Conduct credit checks

Conducting credit checks on new clients should be a requirement to help head off risks before they become apparent. This can be especially true in temp recruitment where payroll is sometimes run on credit to ensure workers get paid on time some and clients disappear. There are even instances of scammers posing as clients and the “workers’” pay is diverted to the scammers accounts. Assess payment history and financial stability to help your business make informed decisions before extending credit. This approach can also be applied to existing clients, it is always worth ensuring you are aware of the historical payment behaviour of your current clients before extending credit on new roles.

2. Lead with value

The service you provide for your clients has value. It can help to breakdown what your fees cover, and the value you can add. Don’t assume your clients understand the work you are doing to earn your fee.

3. Explain your reality

Explain the impact of late payments on your agency – if clients don’t pay on time, workers still need their wages, and your business still needs to run. It is not reasonable to expect agencies to act as creditors and cover the shortfall.

4. Understand the payment process

Larger companies with more complex bureaucracies can have more complicated payment procedures and sign offs. Asking the necessary questions upfront can ensure you have a clear understanding of what the process will be to get your invoice paid on time.

5. State your terms from the outset

Ensure your Terms of Business clearly outline payment terms, including due dates, the circumstances that will result in a payment being due to your business, late payment charges (where relevant), any required upfront payment (where relevant); some firms offer guarantee periods, or options like free replacement. It is also important to include clear liability terms to deter clients form non-payment, for example, a term stating that the client will reimburse the recruitment business for the costs of any debt recovery and/or legal action the business makes to pursue payment. Clarity and alignment from the outset can help to mitigate the risk of misunderstandings.

6. Invoice regularly

Sending invoices promptly and following up regularly can encourage clients to pay sooner and help to protect your cashflow. Consider your credit control procedure more broadly and how you are staying in touch with your clients. It can feel like invoice-chasing over the phone for example risks damaging the good will between you and your clients, but ultimately late payments are a risk to your business that will only grow with time.

7. Consider early payment incentives

Though not an option for everyone, some firms offer discounts or incentives for early payments which can encourage clients to pay sooner. Though it is important to balance the risks of this approach.

8. Consider insurance

Insurance like credit insurance can be one way to manage the potential impact of late payments, assuring that payment will be received even if the client defaults. In some cases, credit insurance can also make it easier to secure financing from banks and financial institutions.

9. Legal recourse

As a last resort, it is good to be prepared to take legal action to recover overdue payments. This can of course strain client relationships and so is worth weighing up the costs verses benefits, but this approach is sometimes necessary to protect your business.

Hone your negotiation skills with REC partner, Kahvay.

Founded in 2015 by negotiation practitioners, Kahvay offers expert training, coaching and consulting to help you become the most skilled negotiator you know.

Negotiation is uncomfortable, and it can be stressful. But, like any skill, you must practice if you want to achieve better outcomes.

It can be easy to feel you lack the power or authority to turn the tide in your favour during a negotiation. But remember: You have a right to negotiate. Kahvay founder Giles recommends focusing on your power, “you are always more equal than you think.”

Most, if not all, of the strategies at your disposal for managing client payment behaviour require you to maintain your ‘power’ in a negotiation. 

Kahvay’s top tips:

• Be confident: Clearly articulate your value and be willing to walk away from unfavourable deals if necessary.
• Create urgency: Highlight high demand for your services to encourage clients to accept favourable terms.
• Offer flexibility: Propose creative solutions like early payment discounts or instalment options to satisfy both parties.
• Master the art of the conditional trade: The magic phrase of ‘If you…then we’ is your friend.

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Learn more about Kahvay