When your agency shuts: a recruiter’s 5 tips if you’re unpaid

A week is a long time in the contractor staffing company sector, it seems, writes investment and wealth management recruitment specialist Natalie Bowers, founder of Bowers Partnership.

Just seven days after my advice for IT contractors on how to protect against recruitment agencies closing their doors on them, I found myself assisting both a contractor and an end-client whose agencies had indeed primed themselves for liquidation.

What actions to take if your recruitment agency is on the verge of shutting?

And another key question tied to this one, above, is ‘What if your recruitment company has folded and you’re owed money as a limited company?’

I’m reliably informed that ContractorUK will have a solicitor along shortly to offer some legal advice in answer to these types of questions.

But I want to offer here is some practical tips based on my two-plus decades of recruiting, partnering with end-hirers and contractors, including those I’m now assisting whose agencies (plural), have now hit the skids.

Agency contractors, to obtain your money you must go Praying Mantis…

Before my top tips to get paid if your agency has gone bust, be aware; this is generally where agency contracting gets ugly. Even someone like me, with 25+ years in recruitment, has recently had to morph into a part Praying Mantis just to obtain owed money!

The checks, hoops, compliance, ‘reverse onboarding’ and admin you have to go through when faced with an insolvent recruitment agency are relentless. Notching the pressure up further is that, when a recruitment agency fails, you’ve got to move fast.

In short (and I’m aware that the upcoming legal expert may well disagree with me), my view is the following:

The worst thing contractors can do is wait for the administrator to get in touch

I’m also reliably informed that ContractorUK readers will soon hear from an insolvency practitioner, who liquidates agencies for a living, so check back for at least them disagreeing with me!

If you want to no longer be out-of-pocket after contracting with or through an employment agency, follow my five tips if you’re owed fees but the agency has gone bust, while remembering that if you act quickly, you can get through what will very likely be a stressful mess.

‘But how?,’ I hear you ask. That’s simple:

Be part Praying Mantis, be part rabid dog -- and don’t let go until you’re paid!

Without further ado, here’s my top 5 tips if you’re owed fees but the agency has gone bust.

Tip 1: Bust recruiter. Going, Going, or actually GONE?

First and foremost, work out if the recruitment agency is actually in liquidation.

Or is it just a late invoice payment and a rumour worrying you?

Or has the agency formally hit the wall?

It can take a while to update its records, but to ascertain if the agency is going or gone to the wall, first check Companies House. Even just signs of administration or liquidation can be detected by looking at the agency’s recent filings.

At this stage, if the wobbly agency tells you “we’re restructuring” or “our finance team is on leave”, be very suspicious. In fact, don’t fall for these potential nonsenses until you know, for sure, their financial position.

If you buy into these claims, by the time an administrator pops up, every day you wait means every day there’s less chance of obtaining money you’re owed.

Again, this is just my experience. Administrators might have you believe the contrary.

Tip 2: If you’re an unpaid agency contractor, speak to the client

As a contractor, your second port of call is to pick up the phone or go to the client and ask:

• Have you already paid my invoice(s) to the agency?

Then say:

• If you haven’t yet paid the agency, can we work something out -- directly or via another agency?

If the end-client has already paid the agency, they won’t pay you again. They don’t have to, and they won’t!

What about ‘going direct’ if the agency is in financial distress?

Before you get excited about going direct with the client, yes, you potentially could (assuming no contractual restrictions), but the client will pay you slower than most agencies will.

Oh, and dealing with their finance department as a one-person business is hell, and can even damage your relationship with the client if mishandled.

Direct-to-client pain points

Then there’s the other painful questions of direct-to-client engagements, having until now been an agency contractor:

• Who’s going to negotiate your extension or rate increase?
• Who’s writing your contract, and will it even be compliant?
• Fancy some IR35 headaches? No problem, because the end-user might very well want to start controlling you now that you’re in a weaker position.
• Ready for their timesheet system? If they have a system (at all), you’ll age ten years just trying to get sign off and payment!

Grass is rarely greener, even (sometimes) if another agency comes along

Likewise, don’t jump from the agency frying pan into the agency fire by signing with another recruitment firm that’s also on the brink.

Do your background checks first; it could save you from a recurring nightmare.

In short, when an agency goes bust, the grass is rarely greener, especially on the direct-to-client side of the fence.

When it comes to what most contractors really want with an agency on the skids -- their hard-earned money paid -- there’s usually no ‘sweetener’ available, because the end-client won’t pay you the same as they used to pay the agency.  

Tip 2: Remember, the RPO win is your loss

Got a client with an RPO (Recruitment Process Outsourcer)?

Brace yourself. They’re probably rubbing their hands together, as your failed agency is another rival knocked off their list of competitors.

RPOs are often part of the problem, in my experience.

Their commercial terms are brutal. Think razor-thin margins, endless compliance hoops, and payment terms that are never in anyone's favour!

On paper, those terms are typically “30 days minimum,” sometimes 45 days. In reality? They pay even later. I’ve seen one RPO contract this week where the now-dead agency had to refund the RPO if the end-client didn’t pay them. No wonder some agencies cannot survive!

It’s a last resort to go direct with a Recruitment Process Outsourcer

Whatever you do as an unpaid contractor with an RPO in the chain, don’t try going direct with the RPO. In my experience, it’s the worst of all worlds and should be your absolute last resort. Your better bet is to bring in another solid agency that’s familiar with this world of pain. Let this solid agency take on the RPO circus. They’ll know how to survive it.

If there’s one thing worse than your agency folding, it’s walking straight into an RPO trap, thinking they’ll make your life easier. They won’t!

Tip 3: Contact the liquidators 

If you’ve got outstanding invoices as a limited company contractor and you were via an agency, and you can’t move to a new agency or get the client to pay you directly, then it’s time to deal with the liquidators.

This is the slowly trudging through mud part!

Unsecured creditors (rabid dog) v preferential creditors (HMRC)

Get ready for slow responses, long forms with opaque language, and the crushing realisation that contractors are at the bottom of the pile, by virtue of being “unsecured creditors.”

If you get anything back, it’ll be pence. Well, it might be a bit of silver and gold more, but “pence” is where to pitch your expectations.

It’s not me being pessimistic. I’ve been through this process for contractors caught up in agency collapses, and it’s exactly as tough (and often fruitless) as I’m making it sound.

This is the stage where you have to go full rabid dog, or you’ll get nothing.

The sad truth? This process of getting paid by an insolvent company isn’t designed for you -- it’s designed to cover everyone else first, even HMRC, which now has preferred creditor status in business insolvencies.

Tip 4: Don’t get burned TWICE

A faint silver lining if your agency goes bust leaving you unpaid is that your client will want continuity.

So, as a contractor, a top tip is to make it easy for the client to keep you on, ideally via a solid agency. But I’ll say it again -- don’t jump into bed with another financially wobbly staffing business.

One collapse is bad enough. Always do your homework first. Advisers who you can get in your corner ‘gratis’ are less likely to help you second time around, without wanting their own invoice paid!

Tip 5: Talk to other contractors fast

If you're in the dark and sense your agency’s gone under, or is going under, other contractors might already know what’s happening with the client or whether a new agency is stepping in.

Pooling intel with fellow contractors can save you time and keep the work flowing.

Remember, though, this intelligence malarky relies on humans and we mere mortals are prone to errors, poor judgement and even maliciousness!

TL;DR: When your recruitment agency goes bust: 5 tips if you're unpaid

It’s easy for me to say as an agency boss, but it’s also easy to skip if you’re a contractor, so I’ll reiterate:

Do your homework about an agency, upfront.

As a bare minimum to protect yourself as an agency contractor, do these three:

1. Avoid “paid on paid” clauses;
2. Make your invoice unassailable as part of guarding against late payments, and;
3. Invoice regularly and never late (so they have no excuse for late payment).

My final thought as an agency boss who's helping out-of-pocket contractors/clients...

And yes, it’s exhausting if your agency sinks taking your outstanding invoice(s) with it. Even for an old recruitment guru like me, getting contractors paid when their agency collapses is like pushing water uphill, and it’s a full-time job. But being proactive is the key. Follow my five tips here alongside that incoming advice from those legal and insolvency experts, ideally through the lens of this guide by a debt recovery specialist on getting paid by a closing or closed staffing agency, and you’ll be really optimising your chance of receiving your dues.