Value Added By Agencies

[MaltSokol]

Hello,

In my current gig everyone has been hired through referrals but everyone is going via the same agency, which in turn links to a large IT services provider which then links to the final client. This is extremely silly due to the fact that no (recruitment) value has been added by either of these two intermediaries and they take a combined cut of 15-20%. "That's the way it is". Everyone has to go via an agency.

My question is what value for the final client are these companies providing that they want so badly that leads them to miss out on a lot of money. Some come to mind: background checks, compliance, work eligibility checks, references checking. These are understandable, but are a one-off per contract really.
Funnelling many contractors' invoices into a single invoice, etc... Any further ideas?

Is cashflow an issue? I am paid 7 days after raising an invoice. Perhaps the agency is paid at 30 days and the IT Services provider at 90 days by the final client? Does this happen often?

I'm asking this because I have an idea about creating an intermediary entity that would provide these admin services but would not do recruiting. It would be used in cases where having a third party agency is a mandatory but no recruitment is actually being made. The client would pay a discounted percentage and the contractor (and possibly their referrer) would get some form of cashback.

Thanks everyone

[malvolio]

Don't bother, it won't work. Do some reading on commercial risk assessment to understand one reason why. Work out the capitalisation needed to support 50 contractors on £500 a day for the gap between paying them and being paid for another.

HTH

[MaltSokol]

Don't bother, it won't work. Do some reading on commercial risk assessment to understand one reason why. Work out the capitalisation needed to support 50 contractors on £500 a day for the gap between paying them and being paid for another.

HTH

Thanks for your response!
I try to stay always optimistic

50 contractors at £500, 17 billed days on average + VAT = £510,000 billed per month

If the client is paying at 30 days and (my) agency is paying the contractors at 7 days, that's 23 days of accounts receivable financing. For that value and that term can be financed for a £6,700 fee (according to Market Invoice after 5 minutes of Googling ), which is a 1.4%, say 2% to be on the safe side. This would be factored in in the fee paid by the client. The issue is that they only advance 85% of the invoice amount.
I would still need a working capital of £76,000 or it can be discussed with the contractor to pay the remaining 15% in a second instalment at a later date in exchange of getting that cashback I mentioned.

If the client is paying at 90 days, it comes at 2.2%, so say 3% to be on the safe side. The net working capital required triples to £210,000, which makes it less viable for this volume. In any case it's clear that building a nice war chest of net working capital would be the Nr1 priority to reduce the cost of financing.

Is there anyone with recruitment industry knowledge that could please corroborate or refute these figures?

[missinggreenfields]

Don't bother, it won't work. Do some reading on commercial risk assessment to understand one reason why. Work out the capitalisation needed to support 50 contractors on £500 a day for the gap between paying them and being paid for another.

Agree - last agent I used had weekly invoicing, 7 day payment terms. Direct client has monthly invoicing, 60 day terms. The sums just don't add up unless you can, in turn, factor those invoices to get the money to pay the contractors - or if it's a group of mates then they could sign up to the same crappy terms of payment - but why would they?

In th OPs case, I'm not sure why they need to have two intermediaries to take someone on who has been found outside the agency model, though.

[MaltSokol]

In th OPs case, I'm not sure why they need to have two intermediaries to take someone on who has been found outside the agency model, though.

It's not unusual, I've seen it often in large organisations. You have the client, then a large provider like Capita or Experis, then your agent and then you. And large provider makes you go via an agent because they don't do any of the compliance checks. They leave that to the agent.

[MrMarkyMark]

It's not unusual, I've seen it often in large organisations. You have the client, then a large provider like Capita or Experis, then your agent and then you. And large provider makes you go via an agent because they don't do any of the compliance checks. They leave that to the agent.

In this instance though, Crapita would be your client though?

I don't know why on earth you think you would have been able to circumvent this.
The likes of them usually have their claws in well deep

[LondonManc]

Thanks for your response!
I try to stay always optimistic

50 contractors at £500, 17 billed days on average + VAT = £510,000 billed per month

If the client is paying at 30 days and (my) agency is paying the contractors at 7 days, that's 23 days of accounts receivable financing. For that value and that term can be financed for a £6,700 fee (according to Market Invoice after 5 minutes of Googling ), which is a 1.4%, say 2% to be on the safe side. This would be factored in in the fee paid by the client. The issue is that they only advance 85% of the invoice amount.
I would still need a working capital of £76,000 or it can be discussed with the contractor to pay the remaining 15% in a second instalment at a later date in exchange of getting that cashback I mentioned.

If the client is paying at 90 days, it comes at 2.2%, so say 3% to be on the safe side. The net working capital required triples to £210,000, which makes it less viable for this volume. In any case it's clear that building a nice war chest of net working capital would be the Nr1 priority to reduce the cost of financing.

Is there anyone with recruitment industry knowledge that could please corroborate or refute these figures?

This is just part of it.

Have you got a legal expert at your beck and call to tell contractors who have been terminated why they don't get a penny, simply because client wants them off site? Or because contractors have had their contract reviewed by QDOS and want certain clauses changing? Throw in your legal cover, office costs, etc and you'd potentially need £1.5m before you saw a penny from the client. Granted, you'd see lots of pennies, but it's a lot of working capital needed and a lot of risk.

Do you have administrative staff to look after all five hundred contracts, work with HMRC to discuss potential inside and outside IR35 issues?


Another scenario: you upset a key contractor in some shape or form; said contractor downs tools because they're peed off with you and tell the client. This guy is mission critical and you potentially lose the client. What do you do?

[MrMarkyMark]

The other side of it is the OP has got to understand why the consultancy is there.

It may be that the CEO and the upper management, of the consultancy, are great golfing buddies.
It may be / also be that the consultancy is in there as a fall guy for when the project goes down the pan.
It may also be perceived that the consultancy has other resources to offer the client, past experience, speed of bringing people without credit clearance etc.

Things are not as simple as you see them.

Yes, cost is important, however you then have to ask why people employ the likes of Accenture, KPMG etc. when they are known as "expensive"

You can be as optimistic as you like, but you are on a real hiding to nothing on this one.

The likes of Crapita would take you straight to court, if you ever actually managed to make any headway.
The client would likely to be in some kind of breach of contract as well.

[missinggreenfields]

It may be / also be that the consultancy is in there as a fall guy for when the project goes down the pan.

I worked on a project where this was the only reason that the consultancy were brought in - they came in mid-way through the project, client paid £3 million more than the current budget, and they kept most of the contractors on to do the job. The advantage was that when things went wrong, they had someone with a big name and big pockets that they could blame and sue.

[LondonManc]

I worked on a project where this was the only reason that the consultancy were brought in - they came in mid-way through the project, client paid £3 million more than the current budget, and they kept most of the contractors on to do the job. The advantage was that when things went wrong, they had someone with a big name and big pockets that they could blame and sue.

Not only that but the management can use the line "well, if we couldn't do it *with* the consultancy, we'd have had no chance at all without their *expertise*".