Wary of being burned, temp agencies are making it much more difficult to employ workers. Virtual Computer, based in Westford, Mass., was ready to go. After securing $21 million in venture backing, it was time to ramp up from 6 employees to 40. That meant Doug Lane, senior director of product management and marketing, needed to hire software engineers, administrative assistants, and sales and marketing pros. So he turned to regional staffing agencies for help.
Lane had expected to sign on a dotted line and have his workers show up soon after. But that’s no longer the way temp agencies work with small companies. Instead, the agencies wanted to meet with Virtual’s management team, and with their venture backers, for added assurance that the $1 million company had the funding it claimed.
Even as economists and policy-makers are counting on small companies to help lead the economy out of the recession, business owners seeking temporary workers as the first step in hiring are finding agencies less willing to do business with them. Temporary agencies, afraid of getting burned by companies that are going under, are scrutinizing potential customers more carefully, checking financial documents and credit reports. And they’re expecting small business owners to pay up sooner - often within seven days. The result is predictable: “It starts to slow the business down,” says Michael Gaiss, senior vice-president of Lexington (Mass.) venture capital firm Highland Capital Partners.
Until recently, small businesses could more easily get credit from a temp agency than from a bank, says Bill Kasko, CEO of Frontline Source Group, a Dallas staffing company. “You could call an agency and say, ‘I need to hire three individuals,’ says Kasko. “You would probably get an agreement, and they would not want to do a credit check.” The agency pays workers immediately, even though the agency itself might not get paid for a month or more.
WHEN CHECKS ARE LATE
Kasko says all new clients now get site visits. He keeps an eye out for red flags, such as a request for extended payment terms or an unwillingness to sign an agreement. He’ll also check to see if the company has made layoffs recently, and he’s quicker to pull workers if payment doesn’t arrive on time. Still, he has had to file 10 lawsuits for nonpayment this year, totaling $200,000. Kasko says nearly 75% of his new business is from companies with fewer than 100 employees. Before the recession, small businesses accounted for less than 50%.
At Bayside Solutions, a temp agency in Pleasanton, Calif., “We are definitely conscious of a company’s credit-worthiness,” says President Ed Williams. Entrepreneurs used to get 30 days to pay; now they get seven. He scrutinizes a company’s credit report, and new clients may get approved for fewer employees than they might have during flush times.
For some agencies, even those tactics don’t provide much reassurance. “We rarely work with brand new businesses,” says Suzanne G. Davis, president and owner of Temporary Staffing by Suzanne, a small recruiter in New York, echoing many in her industry. That can leave a wide range of entrepreneurs ramping up more slowly than they’d like – unless, like Virtual Computer, they have $21 million in the bank.
Reprinted from the October 26 issue of BusinessWeek by special permission, copyright © 2009 by Bloomberg L.P.
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