Best agency margin if the agency has been gifted the role and the candidate?

[BolshieBastard]

A former client (no longer exists unfortunately) asked me back on a utilities project some years ago but said I had to go through an agent.

However, the client agreed my rate up front and said the agency mark up wouldnt come out of this. True to their word, it didnt. I got the rate I wanted, dont know how much the agent shafted them for though!

[craig1]

Thanks for the replies – I should probably have given more context.

The situation is that I'm undertaking due diligence for a plan b which is a testing services company (perm & con staffing, consultancy, training etc).

So in this case I'm the client (although not the end client).

I've made contact with an invoice factoring agent (Touch Financial) and they seem very on the ball but the percentages being quoted (which to be fair are very preliminary with an action on me to provide more detailed revenue projections etc) make the factoring of contractor invoices very marginal - unless I'm missing a trick. The preliminary advice was that Lloyds might be an appropriate option.

I've got several hundred thousand in reserve so getting started isn't a problem (subject to me running a credit check on my own company) but the issue is scaling the business going forward - my reserves won't go far at all on, say, 90 day terms so I need some sort of factoring facility for the contract staffing element of the business.

This led me to wonder whether it might be possible to go to one of the big boys like Spring or Reed to payroll contractors/roles that I've found on a commoditised pricing model. I have previously done this with Reed as a hiring manager - I think it was about 3% although I accept it was part of a big account for them.

I appreciate this may not be feasible since it appears reliant on at least the following:

- Being satisfied that the payroll provider won't nick the clients (or having my company accepted as a credit worthy client which is unlikely as this facility could quickly run in to millions and surely no payroll provider would tolerate being blind to the identity of the end clients).

- Having payment terms with the payroll provider that are at least as long as those that I have with the end client or that enable me to settle with the payroll provider out of the 80% (or whatever) that I would be advanced by a factor in respect of my company’s outgoing invoices.

Anyone been in a similar situation before or got any suggestions?

Thanks again,
HoT

So, to get this straight, you want this relationship:

Contracts: End client -> YOU -> Contractor
Payments: End client -> YOU -> Payroll provider -> Contractor

If so, I think I understand what you want. You have three options: first a straight payroll service where they pay out but only when they've received your money; second, a credit payroll service where they pay out in advance then invoice you; and third, pay them yourself.

You'll find it damnably hard to get anyone to treat you as a credit customer in that level of money without a substantial trading history and spotless credit check.

Can I recommend that rather than looking for the answer, you define your question properly first?

I'd strongly suggest you investigate how you'll manage your cash flow:

- Are you sure about your payment terms? 90 day terms for the end client are abysmal and should only be accepted if you're seriously cash rich and are putting a significant mark-up to compensate for the cash flow hit. 30 day terms are acceptable for every client from the biggest to the smallest. You can usually cut that even finer if you're OK at negotiating, for example on my direct consultancy bits of work I quote 30 day terms but allow a 5% discount if they pay in 7 days or 3% discount if they pay in 14.
- Are you a good negotiator? For substantial pieces of work, you should consider asking for a deposit, especially if you have to fund activities or purchase items. If you're at the point that they want you and you're discussing fine terms then a discount is certainly on the table. I generally offer a 10% total value discount for 50% deposit on engagement; money in my bank is infinitely preferable to money in theirs uninvoiced.
- Do you have an eye for detail in creating scopes of work? You really do not want to get into the position of having to answer queries on invoices for work that isn't absolutely identified, that's a cash flow killer.
- Are your contracts bulletproof, including payment terms?
- Why use factoring? Avoid factoring firms unless you're genuinely struggling for money and are about to default. Why should you get 80% of an invoice when you've earned 100%, all for the sake of waiting 30 days for your money.
- Do you know how you'll do your accounts receivable? When will you start chasing for money? If you're answer on that last one is "when it goes overdue" then you'll run out of money. You should be chasing as soon as your invoice hits with a forwarded version to the client manager stating "here's the invoice I've sent to your AP people for the work that we agreed and was completed over (dates)", this will clear the air over most invoice queries very quickly. That's just one tip you'll need to learn.
- Do you understand how a bad AP:AR payment ratio can bankrupt you?

Those are just some of the things you need to understand before you can decide on how you'll pay your subbies. I know far too many people acting as third men with subbies who have gone under because of cash flow problems despite them having six figure reserves.

[TestMangler]

So...errr....what are they payrolling??

Err.....payroll.......

The agency are paying me.

I see what you're saying though. I thought the client/contractor contract was a bit strange too, when the agency is paying me, but it's working so far and it's the fastest turnaround of timesheet/invoice/payment I've ever seen (three days).

Although the client is a bank (and not one of the biggest in the UK either), they seem to have some pretty strange procedures on the go. Six/seven week compliance checking, direct client contractor contracts. Not complaining though, as payment is quck and so far accurate.

[Scrag Meister]

Err.....payroll.......

The agency are paying me.

I see what you're saying though. I thought the client/contractor contract was a bit strange too, when the agency is paying me, but it's working so far and it's the fastest turnaround of timesheet/invoice/payment I've ever seen (three days).

Although the client is a bank (and not one of the biggest in the UK either), they seem to have some pretty strange procedures on the go. Six/seven week compliance checking, direct client contractor contracts. Not complaining though, as payment is quck and so far accurate.

I went direct this time but the structure is the same as if the agency had found me the role, as the client threw the agency in the mix. No idea as yet about their %age though.

[The Agents View]

So, to get this straight, you want this relationship:

Contracts: End client -> YOU -> Contractor
Payments: End client -> YOU -> Payroll provider -> Contractor

If so, I think I understand what you want. You have three options: first a straight payroll service where they pay out but only when they've received your money; second, a credit payroll service where they pay out in advance then invoice you; and third, pay them yourself.

You'll find it damnably hard to get anyone to treat you as a credit customer in that level of money without a substantial trading history and spotless credit check.

Can I recommend that rather than looking for the answer, you define your question properly first?

I'd strongly suggest you investigate how you'll manage your cash flow:

- Are you sure about your payment terms? 90 day terms for the end client are abysmal and should only be accepted if you're seriously cash rich and are putting a significant mark-up to compensate for the cash flow hit. 30 day terms are acceptable for every client from the biggest to the smallest. You can usually cut that even finer if you're OK at negotiating, for example on my direct consultancy bits of work I quote 30 day terms but allow a 5% discount if they pay in 7 days or 3% discount if they pay in 14.
- Are you a good negotiator? For substantial pieces of work, you should consider asking for a deposit, especially if you have to fund activities or purchase items. If you're at the point that they want you and you're discussing fine terms then a discount is certainly on the table. I generally offer a 10% total value discount for 50% deposit on engagement; money in my bank is infinitely preferable to money in theirs uninvoiced.
- Do you have an eye for detail in creating scopes of work? You really do not want to get into the position of having to answer queries on invoices for work that isn't absolutely identified, that's a cash flow killer.
- Are your contracts bulletproof, including payment terms?
- Why use factoring? Avoid factoring firms unless you're genuinely struggling for money and are about to default. Why should you get 80% of an invoice when you've earned 100%, all for the sake of waiting 30 days for your money.
- Do you know how you'll do your accounts receivable? When will you start chasing for money? If you're answer on that last one is "when it goes overdue" then you'll run out of money. You should be chasing as soon as your invoice hits with a forwarded version to the client manager stating "here's the invoice I've sent to your AP people for the work that we agreed and was completed over (dates)", this will clear the air over most invoice queries very quickly. That's just one tip you'll need to learn.
- Do you understand how a bad AP:AR payment ratio can bankrupt you?

Those are just some of the things you need to understand before you can decide on how you'll pay your subbies. I know far too many people acting as third men with subbies who have gone under because of cash flow problems despite them having six figure reserves.

I know someone who might be interested in this. He runs a "bureau" service - It would normally be more applicable to a recruitment start up, but it could work just as smoothly for a consultancy as well. He would essentially have all of your invoicing done, pay all your subbies, factor the money, chase invoices, etc etc etc for a minimal fee (he does loads of them, so he gets economies of scale).

If you want his number, let me know and I'll get the two of you in touch.

HTH