The Recruitment Sector – Where does Credit Insurance fit in?
The recruitment sector makes good use of the credit insurance markets to protect trade receivables and insulate them from a loss which could damage the financial health of the business.
Corran Barnes (Avenue’s Recruitment Sector Expert) and Sam Ashdown (Avenue’s Senior Credit Risk Analyst) summarise the market’s appetite for Recruitment Sector business and the specific policy wordings available to recruiters.
Market Availability and Insurer Appetite
There are potentially 13 credit insurers competing for recruitment business but not all of these will be a viable option for a recruitment company. Some insurers are not willing to offer the special wordings required to meet the specific needs of recruiters or see recruitment as a very high-risk sector and anticipate a high number of claims. Some insurers are highly selective about the type of recruitment companies they insure, preferring to avoid historically higher risk sub-sectors such as staff supply into the construction or casual dining sectors. In more recent times, the insurers have also steered clear of companies providing ‘Umbrella’ service arrangements.
But setting this aside, there is normally a willing market for recruiters who can demonstrate a robust operating model, a diversified client base and a track record of sound credit management with historically low claim to premium ratios. This is where a specialist recruitment sector focused credit insurance broker like Avenue can quickly identify the most appropriate home for the credit risk. Speed is often of the essence when a comprehensive credit insurance policy is being used as collateral for a financing arrangement.
Our extensive experience of the market and knowledge of specific insurer offerings and wordings enable us to advise on the most appropriate market engagement strategy.
Our Approach to the sector
When we review the needs of a recruitment company for the first time we will also look to establish if there is a need for one or more sector specific special clauses, modules or endorsements.
For existing users of credit insurance working with Avenue for the first time, our policy review process often spot gaps in cover because such wordings have not been added. Most can be added during a policy period but not normally retrospectively so it’s important to get it right first time.
The most common clauses are explained below.
Pay When Paid
If the recruiter enters into a supply agreement with a Recruitment Process Outsourcer (RPO) it is likely the contract wording allows payment of invoices to be withheld by the RPO until it is paid for services supplied to its own client, the end user. In the event of a protracted default or the insolvency of the end user (or even the RPO) the originating recruiter may suffer a significant financial loss. Some insurers allow this double risk to be covered using a standard paid when paid clause subject to certain conditions.
Additional charges apply to reflect that the recruiter is protected from a credit loss attaching to both the RPO and end the end user of the services.
Self-billing is common in the recruitment sector as it simplifies and accelerates the payment process to contractors in particular although insurer policy wordings do not cover self-billing arrangements as standard. As a recruitment specialist, Avenue can ensure special wording is added to your policy remove the obligation for the recruiter as the insured to raise an invoice.
Unsigned Time Sheets
In the event of an unexpected insolvency, it is likely the recruiter may not have been able to raise invoices because time sheets remain unsigned at the insolvency. Some insurers offer wording to allow for such a scenario to be considered in the event of a claim provided the invoices are raised within a short period of time of the date of insolvency.
Using a credit insurance policy as security for an invoice finance facility
A high proportion of our client portfolio use a policy to support invoice financing, which often secures them better advance rates and/or pricing. As a condition of these improved terms, the financier will normally insist on being added as a loss payee. We see an emerging trend towards the financier requiring greater rights under the policy as well as access to live credit limits and other policy information. Avenue can facilitate the best wordings for each insurer which are closely aligned to the needs of the financier and by working with most of the UK’s invoice financiers we can anticipate the wordings needed to speed and simplify the process.
The credit insurance markets are emerging from a difficult period where the threat of Covid-19 insolvencies had the potential to drive insolvency numbers to record levels. This catastrophic scenario has subsided for now and the economy is set for strong growth during the remainder of 2021; recruitment companies have a major role to play in this. For now, we see an accommodating market with an increasing appetite to insure credit risk who are becoming increasingly competitive on pricing, structures and wordings for the right client.
In order to get the most from your policy Avenue has developed a range of unique services to add further value and help our clients maximise the benefits that a credit insurance policy offers.