By Raj Sesha, CEO SDP.
As we proceed into a New Year, some of us may feel the pinch on profit margins. Last year the market saw a steady and stable development, however some recruitment agencies still faced cash flow challenges which hindered their growth opportunities. The year ahead may bring some level of uncertainty; however it is imperative not to dwell on the negatives but to look at new and improved ways of doing things. With some industry professionals forecasting that Australia will continue a steady economic growth for 2013, there is some hope that opportunities will arise and that there will be generation of jobs. It is therefore crucial that recruiters maximise their cash flow, and seek to improve back office systems, where necessary, to withstand these prospects.
Now, more than ever, companies are using greater number of contractors and temporary workers, but employing higher number of these workers poses increased management challenges. For example, the increased amount of administration duties, receivables management, policy compliance and contractual obligations for managing the contingent workforce. However, recruitment agencies do not have to undertake the pressures of these challenges; as outsourcing has become an effective and efficient way to ensure recruiters have the resources and time to concentrate on core business operations to enhance their growth in the marketplace.
From being in the industry of contingent workforce management, SDP have developed and adapted our company to meet the changing demands of the marketplace; and this is essential to remain competitive and to maintain growth. Being resilient to change is what has kept us in the industry today, from our humble beginnings back in 2004.
Two years ago, we were approached by a potential specialist medical recruitment agency employing around 20 temporary medical workers and contractors. Despite having a good workforce base they were having difficulties translating this into profit and were starting to loose contractors to competition. When investigated, it was discovered that they had cash flow issues and their back office systems were struggling to operate effectively. More specifically, they had too many aging receivables at about 30-35%, which was a result of bad management of administration, such as late invoicing to clients and also contract, timesheet and payroll disputes – basically there was no organised system in place. We stepped up to the mark to provide a complete solution to this client to improve their cash flow management. Fundamentally, we designed and managed an organised system that involved contracts for each contractor to ensure invoicing and payroll systems ran systematically. In essence, we provided total management of their contingent workforce, including back office services, and cash flow management and factoring solutions. Which in turn generated profits, improved cash flow and competitiveness, as now the agency employs 80-100 contractors.
Factoring services can ensure better cash flow management for recruiters, as invoice factoring enables payments to contractors on time; as many of us know that clients can take several weeks to settle outstanding invoices. Cash flow problems are the bane of most new small and medium contract recruitment agencies with the first couple of months to a year into operations can see many hundreds of thousands of dollars as out goings. Factoring services can offer the solution to maintain a healthy cash flow and enhance and facilitate growth in the market regardless of the conditions.
Outsourcing back office operations is an aid to improving efficiency. Many recruitment agencies have jumped on the bandwagon of embracing outsourcing as a better way to manage all facets of employing contractors. Not only does it reduce costs, but it provides one single point of accountability, improving risk compliance and provides more resources internally to concentrate on their core activities. Alongside cost savings agencies can enjoy a more streamlined process and improved cash flow and can therefore focus on growth.
Adopting new technologies is also an innovative way of embracing growth prospects. Three years ago, after identifying a gap in the marketplace, we saw the opportunity to develop an innovative system to enable recruitment agencies to manage contractor management processes in house. After consulting with all key end users of the process; independent contractors, recruitment agencies and companies we designed a system called TemPay which has streamlined recruitment agencies management of the contingent workforce; freeing up time and resources to concentrate on key recruiting activities.
As we face another year of increased threats of new entrants into the marketplace, do not be left behind the competition, seek better and more efficient ways of operating. Whether it is maximising cash flow by improving back office systems or implementing new technology, it is important to engage in change and not be afraid to adopt new and innovative business strategies. As the end results will ensure growth and increased competitiveness.
Note: This article appeared in the February edition of the RCSA magazine.
Image: http://www.flickr.com/photos/aigle_dore/
