While some data is public, specialist credit bureaus provide additional insights like credit limits. These checks mitigate non-payment risks, and recruitment agencies need to use them strategically to enhance their business direction and decision-making.
This article looks into the best ways recruiters can use credit checks to help their business grow.
Why perform a credit check?
Assessing a client's credit status is crucial before engaging in business. Credit checks can help assess clients' financial stability, set up favorable payment terms, and reduce the risk of non-payment. Timely checks enhance decision-making, support faster placements, and ensure contractors are paid promptly, improving the overall client experience and maintaining a competitive edge in the industry.
Credit checks are especially important in instances where recruiters pay contractors before receiving payment from the client, as any delays or non-payment can result in substantial losses. While credit check information isn't the sole factor in decision-making, it plays a valuable role in early risk evaluation and helping to determine whether recruiters should work with the company at all.
Why timing is important
Timing is crucial when conducting credit checks. The ideal moment to run these checks is when a recruiter initially receives a vacancy enquiry from a potential client. Checking too early, before engaging in discussions, offers limited value as conversion to a business opportunity may take months, with potential changes in that time.
Conversely, checking too late, such as when a contractor is set to start immediately, and discovering a high credit risk client, can lead to awkward renegotiations or even canceling the deal altogether. Timely credit assessments help avoid these pitfalls and ensure smoother business transactions.
How should low credit scores be handled?
Conducting credit checks at the right time can significantly enhance a recruitment business's contract management process. Armed with the right insights into clients' risk profiles and credit limits, recruitment consultants can confidently negotiate fees and payment terms that mitigate the potential risks.
Some practical things recruiters can do to work safely with low credit scorers include:
- Negotiate shorter payment terms: set shorter payment terms at 7 days or 14 days, resulting in a quicker cycle of payments received that provides more flexibility from the same credit limit within a month (see image 1 below).
- Suggest higher fees to offset the risk: recruiters should be transparent about their concerns with their clients. This can make taking the risk more worthwhile and goes a long way towards building the best relationship going forward.
- Request credit-free payment options: suggest working on a fee-based basis, leveraging part or full up-front payments. In the case of permanent recruitment, ‘Paid when Paid’ options from finance providers also offer more flexibility.
Partnering with a reputable recruitment factoring or finance service can provide insurance against bad debts, relieve the burden of chasing clients for payments, and help manage aged debtors efficiently.
How credit checks can be beneficial for business growth
Timely and effective credit checks not only aid in financial risk management and negotiation of favorable contract terms but also offer several strategic advantages. They enable quicker, lower-risk placements by providing insights into contractors' placement potential with each client. This supports better forecasting and business planning, helping prioritise clients for potential growth. It instills confidence in decision-making, allowing your team to understand efforts versus reward. Additionally, it enhances competitiveness by reducing the risk of delayed contractor payments, ensuring a positive experience and maintaining a competitive edge in the market.
3R provides distinctive services to recruitment firms, offering free, unlimited upfront credit reports. Automated email notifications promptly relay credit check results, establishing instant trading limits and signaling growth potential with creditworthy clients. To find out more, visit www.3r.co.uk/solutions/back-office-platform
