In my previous article I shared a few recruiting contract language changes that might help you consider your placements “closed” and “due for payment” upon acceptance of the offer, rather than the industry-perpetuated “start date”.
By making your fee payable upon “candidate acceptance” or “resignation” or “completion of background checks” you could issue your invoice 3-4 weeks sooner than having to wait for the actual start date, and then another month to collect.
Here’s another simple tool I use several times each year to accelerate my payments. I should mention I only use this technique when applicable and warranted and only offer this selectively.
Usually, the instances I use my technique fall under one of the following situations:
- Small companies that might get “sticker shock” when receiving one large bill
- Small companies (less than 100 employees) which may pose the greatest risk of “fee evasion”
- A means of offsetting “fee evasion” regardless of company size
- Expediting cash flow during long gaps between acceptance and actual start date beyond the usual 2-3 weeks.
Since small, regional companies with less than 200 or so employees have always posed my greatest risk when it comes to fee avoidance (which only happens every few years thankfully) this technique lessens the chances of such clients trying to evade the fee.
This maneuver also makes evading the fee almost impossible, and minimizes “sticker shock” especially for small companies unaccustomed to receiving $25,000 fees “just for a resume”.
Here’s how this works:
- You have an offer/acceptance and a scheduled start date with a company falling into any of the categories above
- Your start date is about 4 weeks out (or longer for whatever reason)
- You offer to bill the company 1/3 of your fee NOW (the week the offer was extended/accepted)
- The second third (1/3) of the fee is payable on the agreed start date (whether or not is later extended or delayed)
- In return for the client paying you 1/3 “right away” your receiving the 2nd third within 3 days of the agreed start date, you make their final 1/3 payment one month after the start date agreed upon.
In reality you are offering the old “third, third and a third” payment structure except you are offering such post hire & acceptance, and well ahead of the start date, all of which is negotiated under an agreement where the full fee was actually due all at once.
This makes you look like a nice, caring person. In reality my final payment (approximately 4 weeks after start date) is about when most companies would have cut me their check anyway. So I’m really ahead of the game and I’m also locking the client into a habit of cutting IRES checks and avoiding his thinking about fee evasion when he’s already paid 1/3 up front (would be hard to evade or avoid a fee when you’ve already paid 1/3 wouldn’t it?)
For high-risk clients or high-risk hires, I will at least have recovered 1/3, 2/3 of the fee before the idea of fee avoidance comes into mind.
I sent a client the following letter/email back during the third week of July, for an offer/acceptance where the candidate could not start until after Labor Day (September 4th) due to commissions owed on the placed candidates’ former job.
Since I knew the placed candidate was undergoing training immediately effective the week of the offer acceptance, the “placement” was a done deal so far as the client was concerned, as soon as the candidate showed up for his first day of training, even though the official “start date” and resignation was not going to happen for more than one month.
Following is the email I use:
I’m happy to hear Jonathan has accepted the offer letter and is scheduled to come in for his 1st day of training next Monday. He’s equally excited as you are.
As you know our fee is 25% which against the $90k salary will be $22,500 owed to IRES. I would like to propose the following alternative payment plan which I believe will help both COMPANY NAME as well as IRES:
- 1/3 of fee paid by end of next week (July 28)th
- 1/3 payable on currently agreed upon start date (August 28th)
- 1/3 payable on Sept. 28th
The result being in return for remitting 1/3 by Friday of next week we will extended the final 1/3 due out by one month.
Please let me know before the end of this week of your interest in the above alternate payment plan.
While it looks like we’re doing the client a huge favor, in reality this is what would usually occur:
- IRES sends full invoice out on August 28th (over one month after offer was accepted)
- IRES never hears from client for 3 weeks
- IRES makes follow up calls/emails as to invoice status
- Around September 15/20th client admits discovering the long lost invoice
- Client promises to cut check right away
- Around September 28th, (if lucky) or October 4th IRES finally collects full fee
If you notice, the client would have still taken 3-4 weeks to pay in full anyway. By offering “stretched payment terms” during placements that have long acceptance-to-start date periods, the search firm (me) is ahead of the game by having collected 2/3 of the fee about one month sooner than I normally would have.
You have to be careful when wording this offer. What you do NOT want is the client taking 1 month on each 1/3 obviously. So you will need wording along the lines of “if the 1st check is not received within three days of each date stated below, full fee will be due upon start date…” or along those lines. Use good judgment and common sense as you know your individual clients best.
You can amend this as you like. You can offer an inducement by cutting the fee to 22.5% if you “agree to the following”. I see no point however as the stretched payment term technique is something I only use when there’s at least 1 month time between “acceptance” and actual “start date”. Now I have one full month to gauge the client’s honesty and integrity and the 30 days “extra” is inducement enough from the client’s perspective.
By the way, I always send such a proposal along with something positive that bolsters our having earned our fee. I love positive reinforcement of the client’s trust and habits. Usually it goes out with our “Search Report” or if it was a contingency search an Excel Spreadsheet of the “contact list” (rough candidate list) approached for the job.
Since those lists contain many hundreds of contacts and results spread over many pages – it reinforces the work done behind the scenes that clients never get to see, and the fact we truly earned our fee. It may also trigger minor guilty feelings off-putting those clients prone to nefarious thinking.
I usually receive a reply such as this (copied from recent email including caps lock and all):
I JUST SPOKE WITH MY ACCOUNTANT. WE LIKE THE 3 INSTALLMENTS. YOU CAN SEND THE FIRST INVOICE.
Getting paid quicker is as simple as that. You can modify this to streamline other forms of delayed payments. Using extended long delays, and surprises to your own advantage, can boost your company’s public and client relations image.
Within two years after leaving the corporate world for the search industry Frank Risalvato was earning $21,000 single fees – rivaling his previous annual salary on a semi-monthly basis. He founded www.iresinc.com, the search firm he continues to operate today. Today his fees average $37,500 and he works on multiple positions in the $150k range monthly. His recruiter training site now features his newest book “A Manager’s Guide To Maximizing Search Firm Success”. Click the preceding link or the book cover below for the amazon.com order page and buy a handful to share with your clients. 704-243-2110.
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