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  • Rob Wilks

Have you ever considered the financial stability of your umbrella company supply chain?



As a recruitment agency that uses umbrella companies, you will be sending thousands, if not hundreds of thousands of pounds to another company each week. But have you ever asked yourself whether you truly understand this company’s financial credentials?


It’s time to stop worrying about squeezing margins and minimum rates and start scrutinising your supply chain. Here we explore the things to consider.

How long has the umbrella company been trading for?


You’ll likely get many introduction calls from new umbrella companies each week. One of the first things to look out for when looking at using a new umbrella company is the date on which that company was incorporated. You can easily find this information on Companies House, the government database of all UK companies.


A newly or recently incorporated company should sound alarm bells for a number of reasons:


· You may have limited or no visibility on their financials and will not understand if they are a soundly run company

· Some unscrupulous umbrella companies disappear pocketing HMRC payments that were due, only to phoenix themselves under a new name; could this be one of them?

· They are potentially a much smaller umbrella company, without the income to focus on compliance, business continuity planning or customer services

Have they submitted their first set of accounts yet?


Every company in the UK has 9 months after the end of their first year of trading to submit their company accounts. This means it may be almost two years since the company formation until there is any visibility on their financial grounding.


Whilst small company accounts go un-audited (and can be easily manipulated), the accounts that are submitted to Companies House are used by credit agencies to rate the credit worthiness of that company. They give some indication that the company is well run and that it is not making huge losses. Without understanding this, you could be sending thousands of pounds to a company is desperate need of cashflow, only to watch your temporary workers go unpaid as the new umbrella company suddenly cease trading and pockets your cash.

What is their current credit score?


For many, this information may be more difficult to access, unless you have access to the database of a credit report agency. However, your financier will no doubt be able to help you out and provide this information to you.


A business credit score indicates a business’s creditworthiness and is made up of a number of financial factors. It gives an indication of the level of financial risk involved in lending or sending money to that organisation. Poor financial records, CCJs against the company or regular resignations of directors can all lower a business credit score.


Measured from 1 – 100 (1 being a very low, poor credit score), you should ask yourself whether transferring thousands of pounds to a company with a poor credit score is a good idea. Any company that has a rating of ‘cash transactions only’ should be avoided – it suggests they should possibly not be given any line of credit and therefore you should also avoid sending them money!

What other companies do the directors own?


The directors of one company, may also have interests in other companies; a lot can be gleaned from these other directorships:


· Does the same director hold directorships in a lot of other businesses?

· If so, are many of them active or have the majority been closed down?

· Of those currently active, are they financial sound?

· If they have been closed, what was the last financial status of those companies? If it were poor, this should ring alarm bells, especially if these companies potentially had CCJs against them for instance.

· If the director has a history of starting companies and then shutting them down very quickly, this should cause concern – what was the reason for this? Fraud? Poorly run?


Whilst many businesses in the UK are run by competent, honest people, you should always be on the look out for companies that may try to defraud you or put excessive, undue risk on your company. After all, this risk through poor supply chain management can put a real dent in the valuation of your recruitment agency should you wish to sell it one day.


Clipper Contracting Group are FCSA accredited and have a sound financial record that sits alongside the fact we have been in business for 11 years. We’re an umbrella company that you can trade with confidently and compliantly and rely upon as you grow. If you’re looking to review your umbrella company supply chain as a result of concerns outlined above, ring us on 01305 233170 to find out how we can help.

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