For most large corporations and government departments, hiring teams of contractors through a specialist contract labour hire firm (rather than recruiting permanent staff to meet short term needs) has become the “go to” option.
Why? Because the contract labour option is fast, scalable, hassle free, and perfectly suited to meeting the short term employment needs created by all manner of large scale projects, including, but not limited to:
- Road construction
- Rail construction
- Software Development and Deployment
- Call Centre Operations
Consequently, the number of specialist contract labour hire firms has exploded over recent years, and this sector now represents one of the largest and most buoyant parts of the recruitment industry.
What makes this sector so different from the others is the inherent growth cap, which all operators eventually encounter when they reach their internal funding capacity. Thanks to this growth ceiling, new market entrants can enter the domain and win market share relatively easily.
To illustrate, the contract labour hire provider pays their workers weekly or fortnightly, bills the client at the end of the period, and relies on short term funding to cover up to 80% of the invoice value for 30, 60 or 90 days (until the invoice is paid). Eventually, the 20% of total invoice value, which they are self-funding maxes out, and the firm has reached its growth cap.
Example: If ABC Labour Hire secures a new contract worth $1 million a week and pays its workers weekly, at the end of week 1, they invoice their client $1 million and are $750,000 out of pocket after paying the workers. At the end of week 2, they will be $1.5 million out of pocket, and so on. This continues until they are $3 million out of pocket, when the client pays their first weekly invoice 30 days later.
To enable the firm to fund their wages bill, they typically use a factoring company (or similar), who advance them 80% of invoice value, and remit the balance (less service fees and interest) when the client pays after 30 days.
In this example, what this means is that, instead of being $3 million out of pocket at the end of the month when the client pays their first invoice, the contract labour hire company is $600,000 out of pocket (as the factoring company has advanced them $2.4 million - or 80% of the $3 million).
Ignoring the $200,000 less service fees and interest, which the factoring company typically pays when the money is collected from the client (as most of this is required to meet the contract labour providers own wages, and overheads), this one contract requires that the contract labour provider has internal funding capacity of $600,000.
Assuming the company has internal funding capacity of $1 million, what this really means is that they might be able to take on two projects of this magnitude (at a squeeze), and then they are out of juice.
To the rescue is HirePay, shaking up the Contract Labour Hire industry in Australia by eliminating the funding cap.
By providing Contract Labour Hire companies with easy low-doc access to 100% invoice finance (less an upfront fee of 0.9 -2% of invoice value), HirePay% is enabling companies that were previously constrained by the availability of funding for 80% of invoice value to grow by 667% before they reach their internal funding constraint. WOW!!!
A detailed analysis of the funding options available to Contract Labour Hire firms follows below.
Watch this space for an analysis of the disruption HirePay will cause over the next 24 months.
Our guess is:
- It just got a whole lot harder for new entrants to find a way to take market share from established players, who now have the opportunity to grow their business by several orders of magnitude.
- The age of cooperation between competitive Contract Labour Hire firms might soon become a thing of the past.
Written by HirePay
HirePay is a technology platform that solves cash flow issues associated with the hiring process. The company was founded to help businesses hire better people by enabling them to use professional recruiters, or top consultants and pay their invoices in 4 easy monthly instalments (HirePay pays in full within 24 hours). HirePay also advances funds for contract work and labour hire. HirePay’s solutions have turned financing for hiring from a painful process into an easy one that’s completed and approved in minutes and is a win-win for all parties.