Recruitment agencies often struggle with clients who may refuse to pay invoices or dispute their obligation to pay for services provided. They can use tactics ranging from exploiting loopholes in your terms of business, to employing through a different business entity owned by the same individual or group. Sterling have 12 years’ experience collecting recruitment agency debts, during that time we have grown to understand the regular disputes and tactics that debtors can use in their attempts to avoid payment. We have put together useful advice below to help you protect against bad debts, and to resolve disputes.
Final demand letter for recruitment sector:
Illegitimate disputes are common especially for permanent placements, either from disreputable customers, or where there has been a misunderstanding of the client’s liability. In many cases problems with such customers can be solved by presenting them with a properly composed response or final demand letter. Sterling have – for your convenience – written final demand letter templates available specifically for use within the recruitment sector.
You can find and download the templates for such letters >>at the bottom of this page<< including:
- Advising client of a Back Door
- Non-payment of invoice when candidate has left in rebate period
- Temp to perms
- Reminder for payment
- Final Demand
Resolving disputes and protecting against bad debts – tips for recruitment agencies
There are actions that agencies can take themselves to help avoid bad debts, to ensure they have a watertight case, and to maximise the value that can be claimed from a debtor should debt recovery action be required.
- Review your terms of business with a solicitor specialising in the recruitment sector. Often recruiters inherit contracts from other firms or contacts, clauses may be out of date or contain weaknesses. But even the current, regularly-used agreements from leading recruitment sector associations have deficiencies that can open up a loophole for the debtor. The following deficiencies are common so check that your terms deal with these areas correctly:
- The terms should state that it is not necessary for the agency to be the effective cause of the introduction. If the terms do not, or even worse, if they state that the agency must be the effective cause (or that the introduction must “lead” to the engagement), then the debtor can use this to their advantage in order to avoid liability;
- There should be a clause to specify that any discount given by the agency only applies if payment is made within terms, so that if a client does try to avoid paying your fee then you are within your rights to charge the full rate;
- Often terms of business will have a clause to specify late payment interest and fees. Sometimes we find that the rates stated are actually less than those that we could add under statute. Therefore the terms should allow for addition of your own late fees OR those under statute, whichever is greater. Otherwise the clause should be removed to allow statutory interest and fees to be applied. For example statute allows for ‘reasonable recovery fees’ to be added to a debt when 3rd party assistance is required to collect. This usually allows Sterling to have the debtor cover the cost of our service, and often our client will receive more than their original invoice value once all costs have been considered.
- Your agreement should deal with the common argument ‘we already knew the candidate’ or ‘we found him on Linkedin/Facebook on the same day’. There should be a clause requiring the client to advise you of this and provide evidence in writing within X* days of receiving the candidate’s CV from you (*usually 3 working days).
- Make sure the terms of business are incorporated correctly. It’s a common misconception with recruiters that by emailing their agreement along with the CV means that a contract is in place. When dealing with a new client and even a new vacancy, you should ALWAYS e-mail the client your terms of business separately with a cover letter or cover message BEFORE sending details of any candidates. This provides a clear separation between formation of the contract (incorporation of terms) and performance of the contract (an introduction). If the client negotiates your terms or ignores them without offering alternative terms, your terms of business should then apply and you can proceed to performance (introductions). As a belt and braces approach we also recommend an introductory cover letter with the terms and an e-mail footer with a hyperlink to your terms on all out-going e-mail.
- Make sure you know who you’re dealing with. Often agencies will begin work for a business that is listed as non-trading, insolvent or on the brink of bankruptcy. You can check a company’s status for free at companies house which will show whether the company is live or has a winding up petition against it. For more information including details of CCJ’s you can subscribe to a credit checking service for as little as £300 per year.
- Another trick we have seen becoming more regular is for the candidate to be engaged by a company related to your client, for example an individual may own or be the director of two business entities, sign an agreement with the recruiter using one entity, but engage the candidate with the other. This can also happen with different businesses within the same group. Your terms of business should be in place for the business that will ultimately hire the candidate, and they should deal with instances whereby the client passes the candidate on to another business (in which case the client is liable for your fee, not the hiring business).
- Back door hires, where the client hires the candidate without making the agency aware (and temp to perms) are a growing problem for recruiters, and are often a problem without the agency realising. There should be a process in place to search for back door placements on a consistent and regular basis. You should search 12 months of data and for best results this should take place every quarter. Sterling provide a back door fee finder service to find your back door cases on a no find, no fee basis.
- It is fairly common practice for recruiters to waive fees in cases where they are technically due in the interests of future business, for example in the following scenarios:
- The candidate has left the role in the rebate period but the invoice has not been paid within terms. Most agreements are breached if the client does not pay within terms so no rebate/replacement is due.
- The agency submits a CV and the candidate is subsequently hired only for the client to show that the candidate had previously been introduced by another agency. If your agreement is strong then the client must inform the agent within a certain period if they are already aware of the candidate.
In these cases it is important that you make the client aware that technically you are within your rights to raise an invoice, but you have decided against it as a goodwill gesture in the interest of ongoing business. This will ensure the client is aware of the responsibilities in the future and should buy you goodwill. You should word this in such a way that allows you to invoice for the placement in future should the relationship not be as fruitful as you expect!
- Sign up with a debt recovery agency that specialises in the recruitment market working on a no-win, no-fee service. A good agency will be able to utilise The Late Payment Act to add additional charges to the debt. In most cases this means that the debtor will effectively cover the cost of the debt collection service.
A debt recovery agency specialising in recruitment debt will also help you to tighten up your procedures and agreements so that you are best placed to collect, protecting your business from bad debt. You can sign up with Sterling at no cost, with no obligation so you’re ready to refer debts quickly should the need arise. Contact us to find out more.
Downloadable Sterling templates:
We have collated a number of useful letter templates to help recruiters get invoices paid.
The templates include a Final Demand letter, Reminder letter, and text to help tackle common disputes that recruiters suffer from (back door engagements, rebate periods, temp to perms).
We will be adding to these resources regularly, so please visit the site in future for updates.