Managing cashflow, costs and confidence in today's economy

This is a guest blog by REC business partner, Bibby Financial Services.

The UK economy is in a fragile position, with the outlook for the year ahead offering little cause for optimism. Rising National Insurance contributions, wage inflation and increased compliance demands are placing further pressure on recruitment businesses, at the same time as the labour market becomes more cautious. Together, these factors are contributing to tighter profit margins, and reducing the headroom should activity slow.

When we surveyed the REC member base late last year as part of the Recruitment Industry Status Report (RISR), some key financial pressure points emerged. In this blog, we explore some of the most significant challenges facing recruitment businesses.

Cashflow pressures

Cashflow remains a challenge with 1 in 3 (34%) recruitment firms saying their cashflow position had worsened in 2025 and they were facing difficulties in operating effectively as a result.

Whilst constrained cashflow impacts day-to-day operations, it also limits the ability to invest in expansion. More than 40% of RISR respondents said cashflow pressures had held back growth. This challenge is not unique to recruitment - our own cross-sector research conducted in Q1 this year shows that 32% of SMEs lack the cashflow needed to grow – but it is particularly pronounced for recruitment agencies.

For many recruitment businesses, the issue is often not about performance but more about timing. Payroll typically needs to be funded upfront, while waiting for client payments. This gap can quickly impact the business and shape decision-making.

Late payments

Late payment remains an issue and one that seems to be on the rise. Our research shows that 62% of SMEs say it’s taking longer for customers to pay invoices in full compared to a year ago.

Slower payments can have a material impact on ability to operate and grow, as well as a major contributor to cashflow strain. Indeed, almost a third of recruitment agencies say that faster payment from clients would ease cashflow pressure, highlighting the scale of the impact that slow paying customers can have.

Bad debt

The RISR found that 35% of recruitment firms have suffered a bad debt in the last 12 months – a higher proportion than the 30% reported across all sectors in our Q1 2026 research.

In today’s economic climate, these losses can be destabilising. Of those impacted, 57% incurred a bad debt of at least £10,000, while 21% were forced to write off £50,000 or more.

Using external finance to combat challenge and take opportunities

Against this backdrop, external finance such as Invoice Finance can play an important role in strengthening financial resilience. This is reflected in the RISR, where 38% of those recruitment businesses using external finance reported growth – compared with just 13% of non-users.

Invoice Finance aligns closely with the recruitment business model. By releasing cash tied up in unpaid invoices, it helps bridge the gap between invoicing and payment. And, as turnover grows, the level of funding available grows alongside it.

With the challenges highlighted in this blog likely to persist at least in the near term, building cashflow resilience, protecting against bad debt and having flexible funding in place will be central to sustaining growth.

Find out more about how Bibby Financial Services can help Invoice Finance can help your recruitment business

Matt Capon
Business Development Manager
Bibby Financial Services
T: 07341 562 673
E: Matthew.Capon@bibbyfinancialservices.com

Learn more about Bibby Financial Services (BFS)