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Mid-sized hiring companies hit by payment delays

Barring a few sectors like IT and startups, hiring agencies said manufacturing sectors are largely the ones where they are seeing deferred payments.

, TNN|
Aug 05, 2019, 10.37 AM IST
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Search firms bill a recruitment fee to a company for the time spent on talent mapping, candidate shortlisting and interviewing.
(This story originally appeared in on Aug 05, 2019)
Mumbai: Delayed payments by clients have hit mid-sized recruitment firms, some of which are now facing cash flow issues. A marked slowdown in certain sectors and banks becoming tight-fisted have resulted in an increase in the number of days of sales outstanding, or DSO as the term goes in accounting, for a section of recruitment agencies.

Although large players said they are not witnessing an unusual situation on this front, small- and mid-sized hiring firms, particularly those who do not have a diversified portfolio, said they are feeling the pinch with companies delaying payments beyond the stipulated period.

DSO is an index that is widely used to measure how many days it takes for a bill to be paid. Search firms bill a recruitment fee to a company for the time spent on talent mapping, candidate shortlisting and interviewing. The entire process takes 60-90 days, depending on each case. If an offer is made to a candidate in July, he/she joins a new company in September-October depending on the notice period required to be served at the existing workplace. The search firm ends up paying upfront any cost incurred during this process. However, to maintain cash flow efficiency, it is important that clients do not delay payments beyond the stipulated period.

Antal India MD Joseph Devasia said most recruitment businesses are facing severe cash flow issues due to delayed payments and long pay cycles. “Where clients would usually pay within 30-45 days. this is now extended to 60-100 days. It impacts the bottom lines when payments get delayed and, with banks being wary of lending, smaller recruiters are struggling more. Companies are saying, ‘Instead of five, we will hire only two-three people.’ Cost-optimisation is resulting in reduction of manpower across several sectors. Many companies are even questioning whether they should engage a third party to support with hiring,” said Devasia.

Barring a few sectors like IT and startups, where payments don’t appear to be an issue, hiring agencies said manufacturing sectors are largely the ones where they are seeing deferred payments. Ciel HR Services director & CEO Aditya Narayan Mishra said, “Over the last four months, our DSO levels have increased. Depending on the contract signed with clients, bills get paid in seven days, 30 days or 45 days. The delta has currently gone up by around 10 days. That’s creating working capital issues.”

Ciel HR Services is a four-year-old company, growing at a compounded annual growth rate of 208%. “As a Rs 300-crore company today, we need working capital to sustain our growth levels. My growth is getting impacted with delayed payment cycles. Banks and non-banking finance companies are also not freely lending today,” said Mishra.

Zend Consulting Services founder Vipul Agarwal, who has been in this industry for 20 years, said, “Although we have a diversified client list, elongated timelines on payments is impacting our business. From the time we get a hiring mandate to the time payments are due, the timelines have increased from three months to six-eight months,” said Agarwal.

Clients have admitted to recruitment firms about payment pressures they face from their vendors with the same now having a trickle-down effect. Most companies are on a cost-cutting drive and this could be a big reason for delayed payments, said a CEO of a hiring firm, who’s worried whether he will be able to sustain his operations beyond a year if the situation persists.

Large recruiters, however, said it was business as usual for them. TeamLease Services co-founder & executive VP Rituparna Chakraborty said, “A large part of our business is in the ‘collect-and-pay’ model. There are challenges for organisations operating under this model where we invoice the bill to a client and which is paid. However, we are not facing issues on outstanding dues. There may be situations where an exigency due to external factors occurs, which leads to natural delays. On hiring, customers do tend to take longer when it comes to paying our invoices within a specified credit period, but we have a recurring relationship with our customers which helps us keep it on track and there is a lot of discipline on how our internal processes and systems work.”

Randstad India CFO Viswanath P S said, “We face challenges in collection and many a times the reasons offered include disputes on charges or a misplaced invoice. However, this is business as usual for us. Our DSOs are trending at about the same levels, that is, less than 45 days.”
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