Recruitment

Why a record billing month can leave a recruitment agency short of cash

Billings up, bank down. Why a contract desk funds nine weeks of contractor pay before clients settle, and how to work out your own figure.

In contract recruitment, growth takes cash out of the business before it puts any back in. That is not a warning about bad months. It is how the model works, and it catches good businesses in their best quarter.

A recruitment MD told me his billings were up 31% on the same period last year and his bank balance was lower than it had been in March. He wanted to know what he had done wrong. Nothing. He had placed more contractors.

The shape of the money

Here is the cycle on a contract desk, week by week.

A contractor works a week and submits a timesheet. The agency pays that contractor weekly, often within seven days, because that is what the market expects and because contractors leave agencies that pay late. The client is invoiced at month end, and then pays on whatever terms the framework or the preferred supplier list sets. Thirty days is common. Forty five is common. Sixty is not unusual on a large account.

Put the two together. Work done in the first week of a month is paid for by the agency in the second week of that month, invoiced at the end of it, and settled by the client six or seven weeks after that. On his numbers, the average distance between paying a contractor and being paid for that contractor was nine weeks.

His weekly contractor pay run was £38,000. Nine weeks at £38,000 is about £342,000. That is not a debt he can point at on a balance sheet line and manage. It is the amount of his own money permanently inside the contract book, and it goes up every time he places someone.

That is the whole thing in one sentence. On a contract desk, every new placement is an investment before it is income.

Why the profit and loss account does not show it

His management accounts looked healthy, because they were healthy. Margin on the contract book was where it should be. Permanent fees, which land as clean margin with almost no funding requirement behind them, made the mix look comfortable.

Billings are the number the industry talks about, and billings flatter this picture more than any other measure in the business. A month where he placed six new contractors and closed two permanent roles is a strong billing month, a strong margin month, and the worst cash month of the quarter. Nothing on the profit and loss account separates margin that has been collected from margin sitting in a client’s accounts payable queue.

VAT deserves its own line here. On a contract desk the VAT collected on client invoices can be a large sum sitting in the bank account between quarters. It looks like working capital right up to the moment it is not.

The risk, stated plainly

The risk is rarely insolvency. It is a decision made at the wrong moment on the wrong number.

An owner funds three things out of the same bank balance: the contractor pay run, the tax that has been collected or has accrued, and their own drawings. When the pay run is growing at 31% and the tax sits on a fixed timetable, drawings are the only flexible one, and they are usually the last thing anybody reviews.

The second risk is the one that costs a business its best year. An owner who cannot see the funding requirement turns down a large contract because it feels too big, or takes it and then cannot pay for it in week six. Both of those are decisions made without the number. One of them looks like prudence and is not.

What to measure instead

Three numbers do most of the work here, and none of them needs a new system.

The funding gap, in weeks. The average number of weeks between paying a contractor for a week’s work and receiving the client’s cash for it. Measure it from your own ledger rather than from your payment terms. Terms are what was agreed. Days sales outstanding is what actually happens, and on most contract books the two are a fortnight apart.

The funding requirement. Weekly contractor pay run multiplied by the funding gap. That is the cash tied up in the book today.

The cost of one more placement. Weekly pay cost for a single contractor multiplied by the funding gap. That is what it costs in cash to say yes, before any margin arrives.

Put those three at the top of a monthly report and the conversation about growth changes. It stops being “can we win it” and becomes “can we fund it, and if not, what has to change first”.

Where finance actually helps

A thirteen week cash view is the right tool for this, because thirteen weeks is roughly one full cycle from placement to payment on a contract desk. Down the side: the contractor pay run, permanent fee income, the tax dates, the fixed costs. Across the top, the next thirteen weeks. The number that matters is the lowest week, because that is the week that decides what the business can commit to.

Once the low point is visible, the options are ordinary and they work.

Tighten the invoicing lag first, because it is usually the cheapest week to recover. Plenty of agencies lose a fortnight by invoicing monthly when the client would accept weekly self billing. Chase the two or three accounts sitting well beyond terms rather than working the whole ledger evenly. Set drawings against a forecast rather than against a balance. And if a facility is needed, price it honestly: invoice finance has a cost, and the question is whether that cost is a sensible share of the margin on the desk it funds. Sometimes it clearly is. Sometimes the same money would be freed by invoicing on a Friday.

Status questions on contractor engagements sit alongside all of this. They depend on each contract and on the actual working arrangements, they are decided case by case, and they are a separate piece of work from the cash question. Treat them as one.

The practical point

If you run a contract desk, work out a single number this week.

Take your weekly contractor pay run. Take the average number of weeks between paying that run and the client cash arriving for the same work. Multiply them.

That figure is what your growth costs to fund. Most owners have never written it down, and almost every owner who does finds it larger than they expected.

If there are two of you running the business, work it out separately before you compare. The answers are rarely the same, and the difference between them is the conversation worth having.

Last updated: September 2026. General guidance for UK limited companies, not specific advice. For a 13-week cash view built on your numbers for a contract desk, book a 20 minute Cash Visibility Sprint suitability call. Four weeks, fixed fee, alongside your current accountant.