Bad debt can be an ominous sign for an otherwise promisingly successful staffing agency. Not only can bad debt be an omen for impending trouble, it’s also incredibly easy for staffing agencies to fall into its trap. A lack of research on new clients, ineffective internal collections procedures, and too much dependence on one customer are just a few ways bad debt can easily suffocate a staffing business. Fortunately, there are a few simple safeguards that businesses can implement to guard against falling into the bad debt trap.
1. Credit Worthiness.
Assessing a client’s credit worthiness is the first step towards avoiding bad debt. This means determining the likelihood of a client defaulting on their payment obligations by analyzing factors such as third-party credit scores, pay trends, current and previous balances, available financials, and any previous defaults or collection issues. Implement an in-depth process to determine the credit worthiness of potential clients to help your staffing agency mitigate the risk of taking on bad debt before it is too late.
2. Collections and Debt Recovery.
Collections and debt recovery are considered part of the process of recovering monies owed to your company. Bad debt (e.g. delinquent accounts or unpaid fees) can swiftly cripple a company and affect its ability to operate long-term. Implementing a persistent collections and debt recovery procedure can be the safest way to monitor outstanding monies. It also helps to avoid the need to write off a delinquent account.
3. Diversifying Your Client Pool.
Concentrating all your business with one client may seem like a practical and efficient way to operate a business successfully. However, when a staffing agency puts “all its eggs in one basket”, it can be a risky gamble. What if that client falls behind financially and loses their ability to make payments? What if demand for their product or service diminishes drastically? This could leave your staffing business with an empty basket altogether! It’s best to avoid concentrating business with just one client. Diversifying your client pool is a more sustainable approach to avoid bad debt and creates more opportunities for growth and versatility in your business.
At Lone Oak Payroll, we offer more than just funding and back office services. We partner with our clients to help them make smart business decisions. Our experienced team understands the common pitfalls and financial mistakes for staffing agencies and how to implement the processes it takes to avoid them in the long-run. If you want to learn more about partnering with Lone Oak Payroll, contact us today!
Read more: Financing Solutions for Staffing Agencies: Payroll Funding vs. Invoice Factoring
