Minimum wage changes prompt cash flow warning for recruitment and labour hire businesses
Tips for better cash flow management
The 3% minimum wage increase, mandatory in Australia from July 1, has prompted leading business funder Scottish Pacific and RCSA to warn labour hire and recruitment firms about how this compulsory commitment may impact their cashflow.
Scottish Pacific Business Finance’s head of debtor finance, Wayne Smith, said the ruling, which will impact the wages of more than 2 million Australians, could have a notable impact on the labour sector.
“An extra 56 cents an hour to $19.49 may not seem like much, but labour hire and recruitment businesses may have dozens, sometimes hundreds, of temporary staff on their books and the minimum wage increase could impact on both their margin and their cashflow,” Mr Smith said.
“Modern recruitment business models are based on providing fast and flexible human resources solutions for clients, but in this rapid-paced work environment sometimes it’s hard for business owners to step back and see if there are better ways to manage the working capital in their business.”
RCSA, the peak industry body for recruitment and staffing in Australia and New Zealand, supports the leading staffing firms to ensure they maintain high degrees of professionalism and sustainable business, so they can set the benchmark.
RCSA CEO Charles Cameron said it is critical that cash flow is forecast and managed proactively so that standards of service and compliance are never compromised.
Helpful cashflow tips
Throughout Scottish Pacific’s 30-plus year history, the labour hire and recruitment sector has represented a significant proportion of the client base and this is an industry Scottish Pacific knows well. Mr Smith offered four tips for businesses, to help improve their cashflow:
Make sure your funding facilities are flexible. Look at bank and non-bank funding options to find the right fit for your business. Deal with a funder that genuinely wants to partner with you and be aware of all the costs and fees involved. “We always recommend choosing someone you feel comfortable with, who can work with you as a trusted adviser in helping your business grow,” Mr Smith said.
Put outstanding invoices to work. A popular funding method within the labour hire and recruitment industry is invoice finance, a line of credit linked to and secured by outstanding accounts receivable. The Scottish Pacific SME Growth Index research shows that growth businesses are five times more likely than their non-growth counterparts to be using, or considering, funding options beyond the banks. For growth SMEs using non-bank options, the Index shows that Invoice finance (also known as debtor finance) is by far the most popular working capital choice to fund growth.
Improve debtor management. Put procedures in place to ensure your business promptly chases up outstanding debts. Whether you do this yourself or use an outsourced collections company, keeping on top of outstanding invoices provides the cash needed to support and grow your business. Consider asking clients for a down-payment or partial payment on major projects, so you aren’t waiting possibly months for full payments (all the while having to find funds weekly to pay staff on your books).
Consider your supplier payment strategies. If you’ve put in place a flexible funding facility for your business, you can then look at how you pay your own suppliers – if your funding generates a stronger cashflow, you might consider paying your own suppliers early and qualifying for a discount.
“From our knowledge of the recruitment and labour hire industry, we understand that it’s a very competitive environment which means that most businesses operate on tight margins,” Mr Smith said. “As such it’s not always easy to simply pass on the minimum wage increase to their own customers, some may need to absorb an element of the additional cost themselves. Invoice finance can help them deal with this cashflow challenge,” he said.
Currently, Scottish Pacific is providing funding to 321 staffing and recruitment businesses across Australia and New Zealand, with combined annual sales revenues of $4.5 billion and credit lines totalling $580 million.