Industry guide · UK
Credit control for recruitment agencies
By AutoSettle · Updated
Quick answer
Credit control for recruitment agencies means credit-checking clients before placing candidates, getting signed terms of business, invoicing temp hours weekly from approved timesheets, and chasing permanent fees on strict terms. Because agencies pay temporary workers before clients pay them, fast, consistent chasing is essential to avoid a payroll cash gap.
Recruitment has one of the harshest cash flow shapes of any service business. Temporary workers are paid weekly, but clients pay invoices on 30, 45 or even 60-day terms. Every new temp placement widens the gap between cash out and cash in.
Permanent placement fees bring their own problems: large one-off invoices, rebate periods and disputes over whether a candidate was introduced by you. This guide explains how UK recruitment businesses can tighten credit control on both sides of the business.
Where recruitment cash flow breaks down
Weekly payroll, monthly receipts
Agencies typically pay temps every week while waiting weeks for the client to pay. Growth in temp numbers can drain cash even when the business is profitable.
Timesheet approval delays
Invoices cannot go out until hours are approved. Late approvals push the whole payment cycle back.
Unsigned terms of business
Without signed terms, it can be hard to enforce fees, payment terms or introduction clauses.
Permanent fee disputes
Clients may dispute a fee by claiming they already knew the candidate, or delay payment until a rebate period passes.
Concentration risk
One large client paying late can have an outsized effect on the agency's ability to meet payroll.
A credit control process for recruitment agencies
- 1
Credit-check every new client
Check the client on Companies House and with a credit reference agency, and set a credit limit before the first placement.
- 2
Get signed terms of business
Make sure fees, payment terms, rebate rules and introduction clauses are signed or clearly accepted before sending CVs.
- 3
Approve timesheets on a fixed day
Set a weekly deadline for timesheet approval and follow up missing approvals the same day.
- 4
Invoice temps weekly
Invoice as soon as timesheets are approved so the payment clock starts immediately.
- 5
Invoice permanent fees on start date
Raise the invoice on the candidate's first day and diary the rebate period end date.
- 6
Chase on a strict schedule
Send a reminder before the due date, on the due date and a firmer notice a week later.
- 7
Stop supply when limits are breached
If a client exceeds its credit limit or goes seriously overdue, pause new placements until the account is brought up to date.
Temporary vs permanent recruitment: credit risk compared
| Factor | Temporary placements | Permanent placements |
|---|---|---|
| Invoice frequency | Weekly | One-off on start date |
| Typical invoice size | Smaller, recurring | Large, single fee |
| Main cash risk | Payroll paid before client pays | Fee disputes and rebate periods |
| Key control | Fast timesheet approval and weekly invoicing | Signed terms and clear introduction records |
| Escalation trigger | Credit limit breached | Invoice overdue after rebate period |
Your rights when recruitment clients pay late
Recruitment clients are businesses, so the Late Payment of Commercial Debts (Interest) Act 1998 applies. You can claim statutory interest at 8% above the Bank of England base rate and fixed compensation of £40, £70 or £100 per invoice, unless your terms of business provide a substantial alternative.
The Conduct of Employment Agencies and Employment Businesses Regulations 2003 require agencies to agree terms with clients before providing services, so having signed terms is both a legal and a credit control essential.
This is general information, not legal advice.
Work out what you can claim with our late payment interest calculator.
Worked example (illustrative)
A fictional agency supplies eight warehouse temps to Hartley Brooks Ltd, billing about £5,600 per week on 30-day terms. By the time the first invoice is due, the agency has paid more than four weeks of wages, over £18,000, before receiving anything.
Automated reminders go out before each due date. When one invoice slips to 15 days overdue, a firm notice mentions statutory interest and £70 compensation, and new bookings are paused until it is paid. The client settles within three days. Figures are illustrative.
Protect permanent placement fees
Permanent fees are large and easier to dispute. Protect them by:
- Recording the date and method of every candidate introduction.
- Confirming the start date and salary in writing before invoicing.
- Diarying the rebate period end date and chasing any unpaid fee as soon as it passes.
- Keeping signed terms on file for every client.
Terms of business clauses that protect cash flow
Well-drafted terms of business are the foundation of recruitment credit control. Check that yours include:
- Clear fee percentages or rates for permanent and temporary placements.
- Payment terms and your right to charge statutory interest and compensation.
- Timesheet approval deadlines and what happens if the client does not approve on time.
- Rebate terms that only apply if fees are paid on time.
- Introduction and transfer fee clauses, with how long they last.
- Your right to suspend supply if invoices are overdue.
Recruitment credit control KPIs
Track these figures weekly to stay ahead of payroll pressure:
- Debtor days for temp invoices and for permanent fees separately.
- Clients over their credit limit.
- Timesheets not approved by the weekly deadline.
- Permanent fees within the rebate period and the dates each period ends.
- The gap between weekly payroll and weekly cash received.
How AutoSettle helps recruitment agencies
AutoSettle reads temp and permanent invoices from Xero, QuickBooks or Sage and chases each one on a schedule that matches your terms. Risk scoring highlights clients whose payment behaviour is getting worse, so you can review limits before exposure grows.
Reminders come from a consistent finance voice, not the consultant who owns the client relationship, which keeps chasing firm without putting future placements at risk.
Frequently asked questions
How can recruitment agencies improve cash flow?
Invoice temps weekly from approved timesheets, credit-check clients, set credit limits and chase overdue invoices on a strict automated schedule.
Can I charge interest on late placement fees?
Yes. Clients are businesses, so statutory interest at base rate plus 8% and fixed compensation apply unless your terms say otherwise.
What if a client disputes a permanent fee?
Refer to your signed terms and your record of the introduction. Clear records of when and how the candidate was introduced resolve most disputes.
Should I stop supplying temps to a client who pays late?
Pausing new placements when a client is seriously overdue or over its credit limit protects your payroll. Follow the notice terms in your agreement.
Is invoice finance the answer for recruitment cash flow?
It can help fund payroll, but it has a cost. Faster invoicing and consistent chasing reduce how much finance you need.
Can AutoSettle chase weekly temp invoices?
Yes. AutoSettle watches every invoice in Xero, QuickBooks or Sage and sends reminders on your schedule, however frequently you bill.
How quickly should a recruitment agency chase an overdue invoice?
Start with a reminder a few days before the due date, follow up on the due date itself, and send a firmer notice within a week of it becoming overdue. Because temp payroll keeps running every week, waiting a month before chasing creates a cash gap that is hard to close.
What credit limit should I give a new recruitment client?
Base it on the client's credit report, trading history and expected weekly billing. A common approach is to cover a few weeks of expected temp billing at first, then review the limit after three months of on-time payment.