The Recruitment Industry Payment Problem
Staffing agencies and recruitment businesses invest significant time and resource into sourcing, screening, and placing candidates — only to find that clients delay payment, dispute fees, or attempt to engage candidates directly in breach of agreed terms. For permanent placement agencies in particular, the placement fee often represents the agency's entire return on a significant body of work.
Tempest Financial works exclusively with commercial clients, and we have extensive experience pursuing unpaid placement fees, backdoor hire breaches, and disputed invoice claims on behalf of recruitment agencies of all sizes — from independent consultancies to national staffing groups.
The Late Payment of Commercial Debts (Interest) Act 1998 (As Amended 2013), applies to every unpaid placement fee invoice. The 2013 amendments, implementing the EU Directive on combating late payment, significantly strengthened creditors’ rights and introduced stronger protections against unfair contractual payment terms.
Statutory Interest
Where payment has not been made within 30 days of a valid invoice – or beyond your agreed payment terms – the Act entitles you to claim statutory interest at 8% per annum above the Bank of England base rate, accruing daily from the date the debt fell due. On a substantial placement fee, the interest element alone can be a significant sum – and it grows for every day the debtor delays.
Fixed Debt Recovery Costs
In addition to statutory interest, you are entitled to claim a fixed compensation sum: £40 for debts under £1,000; £70 for debts between £1,000 and £9,999.99; and £100 for debts of £10,000 or more. These sums are claimable as of right – no justification or evidence is required.
Debt Recovery Costs
Beyond the fixed sums, the Act permits creditors to claim the costs incurred in recovering the debt that exceed the fixed amount – including the cost of instructing a debt recovery agent. We include statutory interest, fixed compensation, and debt recovery costs as standard in all recovery correspondence, ensuring the debtor is aware from the outset that delay will cost them considerably more, not less.
Backdated Claims – Up To 6 Years
Statutory interest under the Act can be claimed going back up to six years under the Limitation Act 1980. Where a client has been sitting on an unpaid placement fee for an extended period, the interest element of the claim can be substantial. We assess the full statutory entitlement as part of every instruction we receive.
Common Issues We Encounter
Unpaid Placement Fees
The client accepts the candidate, the candidate starts work, but the invoice goes unpaid — often with no valid reason given. This is the most common issue we deal with and one we pursue vigorously.
Backdoor Hiring
A candidate is introduced by your agency and subsequently engaged directly by the client, bypassing the agency entirely and avoiding the placement fee. A clear breach of your Terms and Conditions.
Change of Ownership Disputes
A client business changes ownership or restructures, and the new owners attempt to disclaim liability for placement fees incurred under the previous entity. We assess the position and pursue accordingly.
Disputed Rebate Claims
Clients claim a rebate or replacement is owed under a guarantee period, but the facts do not support the claim — or the correct procedure for invoking the guarantee was not followed.
Invoice Raised at Wrong Rate
Scenarios where an invoice was originally raised at an incorrect fee rate, requiring re-issue — and where the client disputes the corrected invoice. We evidence the correct agreed rate and pursue it.
Terms and Conditions Not Accepted
Clients who deny ever having accepted your Terms and Conditions. We assess the evidence of acceptance — emails, conduct, signatures — and build the case for liability accordingly.
Backdoor Hiring — A Growing Problem
Backdoor hiring is, put simply, theft. A client takes the work your agency has done – the sourcing, the screening, the shortlisting, the relationship-building – and then deliberately bypasses the fee obligation they agreed to when they first engaged you. They use your candidate. They just don’t pay for them.
It is one of the most cynical and calculated breaches a recruitment agency can face. Unlike a late payment or a disputed rebate, a backdoor hire requires a conscious decision by the client to deceive. They know the candidate came through your agency. They know your Terms and Conditions. They hire the candidate anyway – directly, through a subsidiary, through a contractor arrangement, or via a different business entity – hoping the agency won’t notice, won’t find out, or won’t have the resource to pursue it.
The scale of the problem is significant. Industry estimates suggest that backdoor hires represent a consistent revenue leakage of 2% or more for agencies of all sizes – a figure that translates to over £100,000 in lost fees annually for a £5 million agency. Multiply that across thousands of agencies operating across the UK, and the total loss to the recruitment sector runs into hundreds of millions of pounds every year. Most of it goes unrecovered – not because the claim is weak, but because agencies either lack the time to pursue it or believe the client’s denials and walk away.
The denial is almost always the first move. “The candidate approached us directly.” “We found them through another channel.” “They weren’t placed in the same role.” “That was a different entity.” These are not genuine defences – they are delay tactics deployed by clients who know exactly what they have done and are hoping the agency will eventually give up. We do not give up.
A backdoor hire is a clear, evidenced breach of contract. Your Terms and Conditions will almost certainly contain a specific introducer clause – a provision that entitles you to a fee whenever a candidate you have introduced is engaged by the client, regardless of the route of engagement, the role, the timing, or the entity involved. The drafting of that clause matters enormously, and one of the first things we do is review it – but in the vast majority of cases, the contractual entitlement is clear and the fee is recoverable in full.
What makes backdoor hire claims particularly powerful is that the evidence trail is often harder to conceal than clients expect. LinkedIn profiles update. Employment records change. Candidates talk. Payroll information surfaces in litigation. We know where to look, and we know how to build the evidential case that turns a client’s denial into a settlement.
What We Can Achieve for You
- Recovery of unpaid permanent and temporary placement fees
- Pursuit of backdoor hire fee breaches under your Terms and Conditions
- Statutory interest at 8% above base rate claimed as standard
- Fixed debt recovery costs added to every claim
- Challenge of spurious rebate and guarantee period claims
- Recovery from clients who have changed ownership or restructured
- Formal demand correspondence drafted to your Terms and Conditions
- Settlement negotiation where a commercial resolution is appropriate
- Referral to our panel solicitors for court action where necessary
Our role is to maximise your recovery at the earliest possible stage, preserving your margins and protecting your commercial relationships where possible.