How much working capital a new hire needs is not the salary line. It is that number multiplied by how long your customers now take to pay you. Payroll leaves on a fixed date. The revenue that person helps produce arrives whenever your debtors release it, and over the last twelve months they have slowed down sharply.
CreditorWatch published its September Business Risk Index on 13 October. Only 48.0 per cent of invoices were paid by their due date, down from 58.0 per cent a year earlier. The share sitting more than 60 days overdue has doubled, from 5.0 per cent to 10.1 per cent, the highest rate since April 2018.
Most hiring plans in this country are still costed as though it were 58 per cent.
Outstaffer publishes its Employer of Record rate on one page at $250 a month per employee, with no setup or platform fee. That is a disclosure of interest, stated before the argument rather than after it.
Working capital is a timing problem, not a budget problem
A budget asks what a person costs. Working capital asks when the money leaves relative to when it arrives. Those are different questions, and only one of them puts a business into administration.
Here is the shape of it. You hire someone in November. They are productive by late December. The work they do is invoiced in January on 30 day terms. On the September figures, barely half of those invoices land on the due date and one in ten is still outstanding in April. By then you have paid that person five times.
How big is the gap now?
Twelve months ago, five invoices in every hundred sat beyond 60 days. Now ten do. The portion of your receivables you have to self-fund for at least two months has doubled, and nobody extended your payroll obligation to match.
What a new hire actually needs you to fund
Use the published numbers rather than an estimate. Employer of Record cover at $250 a month per employee is $500 across the 60 days that one invoice in ten is now stuck behind. That part is small, and it is not the part that hurts.
The salary underneath it is. Once compliance, equipment and statutory on-costs are added, the monthly figure is larger than the one in most spreadsheets, and every month of it is funded before the matching invoice converts to cash.
Which hires are safest under this?
The ones whose commitment is monthly rather than upfront. A placement fee charged as a percentage of first year salary falls due near the start, when the person has produced nothing yet. A per employee subscription falls due in instalments across the period they are actually earning. Same headcount. Very different demand on cash.
That distinction does most of the work in choosing between one hiring model and another, and it is usually treated as a footnote.
The arithmetic most hiring plans skip
Ivan Colhoun, CreditorWatch's chief economist, expects insolvencies to begin rising in the coming months. First time company insolvencies ran to 934 in September. Patrick Coghlan, the chief executive, called the September data "a clear escalation in business cash flow pressure".
The honest counter is that a 60 day overdue invoice is not a bad debt. Most of that money does arrive. It arrives after you have funded it, which is the difference between a business that is profitable and a business that is solvent.
Related reading
So the figure to carry into the next hiring decision is not the monthly cost. It is the monthly cost times the number of months you will fund before the cash lands, and on current data that is more months than it was a year ago. Price a hire that way and some roles still clear comfortably. Others stop making sense, and working that out now is cheaper than working it out in March.
If you would rather hold that commitment monthly than pay it as a lump at placement, sign up and price a role. Or carry the gap yourself, which is also a decision.
What is your business actually funding between payday and payment, and has anyone put a number on it?
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