Industry focus: Personnel services
In general, the staffing services industry can be seen as an economic barometer because we can read future economic developments based on customer demand. On the one hand, we are often the first to record declines in sales at the start of a crisis, as our customers’ staffing needs drop abruptly, but on the other hand, we are also the first to see an improvement in the order situation when our customers quickly need more employees again with full order books. Since July 2020, we can observe that at least partially the economy is recovering, the order situation is currently quite good. If companies (regardless of sector) manage to convert this good macroeconomic momentum into economic success and sufficient liquidity, then I do not see the expiry of various government aid programs as critical – at least for most companies.
In the personnel services industry, internal financing power (e.g., conversion of trade receivables into cash) plays a very important role as a means of procuring liquid funds, since external financing options (e.g., supplier credits) are limited. In this case, bad debt losses are extremely painful and can even threaten the existence of the company (e.g. insolvency). As a service provider, we can often only invoice our services in the following month (often only when we have the hourly records of the previous month from the employee). If the payment condition is also taken into account, long periods of outstanding accounts arise even without late payment. Personnel service companies must therefore keep a close eye on their liquidity.
Classic working capital management does not work to a large extent. The financing options via suppliers are “manageable”, as personnel service companies generally have a low material and asset intensity (purchasing therefore plays a subordinate role in liquidity). The largest outflow of liquidity in terms of amount is wages/salaries and the associated taxes. Consequently, active management is not possible here either, as there are clear legal provisions (deadlines) for settlement. Credit and receivables management therefore assumes a very important operational function in our industry.
Thomas Bravo is a board member at BvCM.
In 2021 and 2022, we expect economic growth with a simultaneous increase in default risks.
Corona has affected companies within our industry to varying degrees. The impact is highly dependent on customer segmentation (industrial/commercial, industry, region,…). This Corona crisis again shows the importance of customer portfolio management (diversification by region, company size, industry,…). For smaller companies serving only a few customers, the possibility of diversification is of course limited, a cluster risk here can also have fatal consequences.