Dear Reader,

In my years of heading a security and housekeeping company, I have frequently heard why does your company insist on payment within 15-20 days of billing whereas our other vendors are “okay” with 60 or sometimes even 90 days of credit? In this communication, I will attempt to explain why do most manpower outsourcing companies insist on relatively smaller credit periods.

The reason for smaller credit periods by manpower outsourcing companies is that they do not get any credit for most of their expenditure, unlike most other vendors who may in-turn pass on the long credit period to their vendors. Almost 90% expenditure for manpower outsourcing companies is employee cost (Salary, ESI, PF etc.) which needs to be paid between 10th and 15th of the month. Therefore, it takes a manpower outsourcing company at-least one year (assuming 8% net margin) to just recover the working capital. If any manpower outsourcing company is offering higher credit period, it could be delaying payments to his guards/housekeeping staff or earning a large margin, which in both cases should be unacceptable to you. In the rare case, the outsourcing company has either picked up the contract due to none financial reasons (e.g. to be associated with a well-known brand) or it is going towards not so slow bankruptcy.

With this information, you may re-look at your current manpower outsourcing vendors.

Regards,

Ravi Kapur