Staffing or Banking? Which Business Do You Want to Be In?

AA000085Would you run a fast-food restaurant in the lobby of your office? How about a machine repair shop?

The answer is simple: you wouldn’t. So why would you become a bank by allowing your customers to have 60- to 90-day credit terms? OK, so maybe there aren’t any tellers in the lobby, but make no mistake, your company is deeply in the credit business when end-users are allowed to take this long to pay their labor invoices.

The following paragraphs discuss techniques that can help keep your company focused on the staffing business, as opposed to becoming a banker.

Due diligence. Start with a 10,000-foot view. What niche industries are you marketing and what types of jobs created in those industries? What are the long-term prospects for growth? Are these companies, the products they produce or the services they offer becoming obsolete? Is the industry offshoring its workforce? If the answers to these questions are generally positive, then start your due diligence process on the individual prospects.

On-site visits. This is one of the very first things you should do as a creditor.

Draw on your experience as a shopper. Have you ever walked into a retail store and seen empty shelves, disorganized merchandise and few employees? What was your impression of that business? How long did it take for that business to close?

At the very least, a business needs to appear vibrant in order for it to succeed, and more important, pay its labor invoices. An on-site visit to a warehouse, factory, medical facility or office can often reveals clues as to how well the business is run and how financially viable it may be.

Once the on-site visit is complete, start gathering financial information. Use credit services like Dunn & Bradstreet (commonly referred to as D&B). If those reports are incomplete, bank references and audited company financials are essential.

Discover which other agencies they have used in the past and contact them about payment cycles. The trick here is to NOT to contact ones that they are currently using. If the current staffing provider(s) is having collection problems, they may not be upfront in hopes that another staffing company will take over the account and they can collect past due invoices. A staffing firm that no longer services the account will be far more upfront about the payment cycle.

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Agree to terms and follow up. Once you have agreed to terms, have the customer sign an acknowledgement form or contract. 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.

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.

Stay in control of the payment cycle by referring to the signed agreement.Remind the client that you delivered the required personnel and they need to deliver payment.Enforce provisions within the agreement.For example: if the terms call for late charges on past due invoicing, charge it.

Keep the client engaged.Make them part of the solution.Open lines of communication are key to getting paid.For example, offer the client payment options — electronic transfer of funds, credit card payments, etc.Even if it costs your company a little money it is better than having the invoice unpaid.Once communication breaks down, the collection process becomes much more difficult.

If payments continue to be past due, consider reducing the amount of staff or billable hours to that customer until payments become current.A successful way of achieving this is have the client pay the current invoice and part of past due invoicing each week until the credit terms are in compliance.If all else fails, pull your staff from that account.That is a tough action, but you need to limit your credit exposure.Usually customers that pay very slow have some kind of financial problem.

Build credit support. Most small to midsize staffing firms do not have the capital or time to spend on a credit department. Dedicated internal employee and D&Bs are pricey. Complying with invoicing requirements,sending invoices consistently on time, remittance processing, reporting, follow-up calls and visits and generating late fee invoices are time consuming.

Staffing companies may want to look at alternative financing sources that provide this valuable service. Those companies should have an infrastructure built to support the credit evaluation, invoicing and collection process. Besides, having a professional third party involved in the collection process gives an independent staffing company more leverage in collecting past due labor invoices.

The payoff. Once your new credit procedures are in place, you will not only save money by reducing annual write-offs and collection costs, but also save on financing costs as well. The quicker invoicing is paid, the less money you have to borrow, resulting in lower costs.

For example, if average DSO was reduced by 2 weeks, then your company could save about $20,000.

Average DSO is 8 weeks

Example: $100,000      Weekly Sales

*8                    DSO Turn (in weeks)

$800,000        Dollars needed to finance A/R

10%                 Financing Charge

$80,000                       Annual Finance Cost

If average DSO is reduced to 6 weeks:

$100,000                     Weekly Sales

*6                   DSO Turn (in weeks)

$600,000                     Dollars needed to Finance A/R

10%                 Financing Charge

$60,000                       Annual Financing Cost

Result is $20,000 in cost savings

By staying out of the banking business, your company could save thousands of dollars in write-offs and financial charges each year. By having a credit and collection process and infrastructure in place will allow your company to dedicate more time to selling, recruiting and developing relationships — all items that will grow your business.

 

MORE: Staffing firm financing options

Nick Andriacchi

Nick Andriacchi
Nick Andriacchi is a director of sales and marketing at Damien Services Corporation.

Nick Andriacchi

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One Response to “Staffing or Banking? Which Business Do You Want to Be In?”

  1. rmacklyn says:

    Which ever business it may be, money keeps a legitimate importance in the segment so as to match up the success factors as well as the monetary profitability. But the billable hours need to be highly conscious and precised. Here with I would like to share one article that defines the tracking and invoicing of billable hours in a more specific and streamlined manner. Check it out here – http://www.replicon.com/articles/tracking-and-invoicing-billable-hours-without-wasting-time.aspx

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