What does Economic Slowdown Mean for the Staffing Industry?

By: Tanya Boczek
Date: 9/1/2007

3 DEFENSIVE STRATEGIES TO KEEP YOU IN THE GAME

It has often been said that the best defense is a good offense (or is it the other way around?) In any event, 2007 is shaping up to be the year that proves that adage. Signs of a slowing economy, painfully obvious in the housing sector, are creeping into other indicators as well, such as business spending and the continued loss of industrial jobs.

In July 2007 the employment services sector lost over 20,000 workers, bringing total job loss to 132,000 for this sector since December 2006.

What problems might this cause your business? Declining sales, lower bill-rates, slow pays and charge-offs are all signs of weakening customer credit-worthiness. Suddenly cash flow dries to a trickle, meeting payroll becomes a weekly challenge and staying current with taxes seems impossible.

But don't throw in the towel yet! With a few block-andtackle maneuvers, you can position yourself to gain an advantage over your competitors during this period.

Strategy #1: Insulate Yourself From Credit Losses

Beef up that defense! First, you'll need to allocate additional resources to your credit department. Adopt a proactive stance and tighten your credit policy now. Take the time to review and analyze the credit of your existing customers...no matter how long you have been doing business with them. Review payment terms and average pay days - now is not the time to offer extended payment terms to your customers.

Talk to your customers, especially those in at-risk industries. Find out how they are faring in this economy. Don't be afraid to place a customer on temporary credit-hold until past due invoices are paid. Continuing to provide workers to a company who is not paying you timely could be fatal to your business. Monitor every customer's unique situation on a regular basis. Adjust customer credit limits accordingly!

If your business does not have the personnel or financial resources to allocate to these necessary credit activities, consider using the services of a factoring company. If you already use a factoring company, now is a good time to lean on them for credit reviews and expertise!. Most factoring companies do not charge their clients for these additional services, as they routinely ask for financial statements and bank and trade references before extending or increasing credit terms to new or existing account debtors.

You should also consider purchasing credit insurance, which protects your company from customer credit losses due to slow payment, non-payment, insolvencies or bankruptcies.

You can choose to cover all your receivables under one policy, or you can purchase a policy for certain customers only. Having credit insurance will allow you (and your funding source) to be more aggressive with credit limits, allowing you to grow your business safely.

If credit insurance doesn't appeal to you, a "non-recourse" factoring relationship can accomplish virtually the same thing.

Strategy #2: Improve Cash Flow

Step up collection calls to reduce accounts receivable and increase cash! Once again, if you utilize a factoring company, now is a good time to take advantage of their services! Often, just having a third-party making collection calls speeds up customer payments and reduces DSO ("days sales outstanding") for your entire customer base. And here is the best part - factoring companies will usually provide this service for free!

Get lean. Analyze the profitability of each contract and let go of less profitable contracts. This will allow you to allocate your personnel to more profitable business. Also consider reducing your own staff or replacing full-time employees with part-time employees to reduce costly employee benefits.

You may also want to supplement your working capital with accounts receivable financing - either from your local bank or a reputable factoring company. In a slowing economy with tightening credit, cash is king - having sufficient cash flow will improve your chances of staying in the game!

Strategy #3: Seek Growth Opportunities!

Go on the offensive. Even in the weakest economy, there are growing markets in certain niches. Finding these niche markets and concentrating on growing those lines of business are key strategies in a slowing economy.

In addition, some of your competitors may be weakened by the economy and may be having trouble retaining clients and workers. If you avoiding credit problems and maintain stable cash flow, you may be in a position to acquire some of these companies. Roll-ups remain a viable option to expanding your business in a fragmented market.

The most important tactic, whether defensively or offensively, is to remain calm and be patient. Have a game plan that protects you from risks while taking advantage of opportunities. Preparation off the field allows you to compete on the field, so get ready to play and win!

Tanya Boczek is a business development officer for the nationwide firm Amerisource Staff Funding. She may be reached at (877) 765-5557 or by email at tboczek@amerisourcefunding.com.