According to the Staffing Industry Analysts, “Gross Margin and Bill Rate Trends” Report, staffing firms’ Gross Margins grew considerably, resulting in significant profits. Temp staffing agencies seem to be making a lot of money year after year. But there are instances where a few staffing agencies fail to make enough profit.
Many staffing agencies do not perform as expected due to various major operational flaws. This article will cover some common reasons for this occurrence and offer suggestions for improving profits.
1. Delayed Payroll & Invoice Generation
Temporary employees constitute the most important resource of a staffing agency, and payments to them are the agency’s biggest expenses. Any delay in processing payroll leads to major consequences such as late taxes, legal penalties, employee dissatisfaction, frustration, and reduced productivity. A firm needs to process employee payments accurately and on time as any mishap may result in client complaints that reduce its business.
Also, it is your responsibility as a service provider to raise invoices without any reminder from the clients. Clients are busy and may see no need to request an invoice. Following the invoicing cycle strictly should have a beneficial effect on your cash flow.
2. Payroll Processing Without Client Confirmation
Timesheets play a crucial role in temp staffing agencies, but if you process payrolls without confirming the timesheets with your clients, it will likely result in multiple losses. Payrolls are strictly processed based on hours spent working for the client. However, if you fail to consider the overtime, unaccounted time entries or leave, you are making big payroll mistakes.
Without an approval and verification system in place, many payroll rejections can occur. You can eliminate the risk of processing incorrect payrolls with BillMyTask. With an automatic timesheet approval process, you eliminate the manual errors in verification and approval of your employees logs with the clients. With automated software services, you can ensure the correct payroll processing in one go with accurate time entries and logs.
3. Low Trading Margins
When you think about efficient ways to increase your agency profits, you are probably thinking just ways to increase profits are cost reduction and increasing sales. However, another critical factor, trading margins, is frequently overlooked. Many staffing agencies can achieve higher profits through higher gross margins. If you are trading on a low margin, you have lost the half battle.
Paying temporary employees at higher than market rates or charging clients lower than the market rates will also have an adverse impact on gross margins. There should be focus on increasing the gross margin after paying the temporary employees payroll, employee benefits, taxes and other operational expenses.
4. Lack of Credit Control
Inadequate credit control can leave your firm with cash flow and liquidity problems and potential losses due to unpaid invoices.
Many staffing firms choose payroll factoring, in which they sell accounts receivable invoices to the factor for a fee and receive cash up front to pay employees, vendors and other obligations. In addition, staffing firms should establish clear payment terms with their clients, be proactive about payment and create a cash flow plan that outlines weekly and monthly cash flow, which determines the firm’s cash flow trends and allows it to plan accordingly.
They also use financial reports and credit monitoring to ensure they are doing business only with creditworthy customers. Proactive credit control also involves building robust relationships with customers and maintaining an excellent rapport based on trust and understanding.
5. Incorrect Payroll
Consistently failing to process accurate payments temporary employees will create employee dissatisfaction and reduced revenue, increase in the labour budget and late tax payments.
The UK has stringent laws regarding employers’ adherence to the national minimum wage. If you fail to comply with payroll criteria, there will be legal repercussions, which may compromise your reputation. Several processes can easily be automated, helping your business stay on track for growth. If you are a small business enterprise, BillMyTask software can help manage your Payroll process correctly.
If your staffing company does not follow a strategic approach, your business will not make adequate profits. Accounting is an extremely important aspect of the success of any business. Contact the ‘BillMyTask’ team to increase your profit margins with efficient automation solutions.
Manage your Staffing agency processes proactively to get the benefits you deserve!