Staffing Managed Service Providers (MSP’s) – Be Careful!
Steven Elias and Steve Capper – Flexible Funding - July 17, 2017
According to staffing industry trade publications, large staffing agencies are now gearing up for huge growth as primary vendors, utilizing smaller staffing agencies as subcontractors or associate suppliers. The business model is sometimes referred to as managed staffing services. This can be cost saving for the ultimate customers, profitable for the primary vendors, and may help some subcontracting agencies get volume they otherwise might not get. However, it often includes a gigantic
headache for the subcontractor/associate suppliers not getting paid. May it be a primary vendor’s profit strategy, an ongoing accident, or careless disregard for the subs, utilizing associate supplier subs allows many primary vendors to use the subs as a free bank by not paying them on a timely basis.
Across the country, complaints by subcontractors have been growing. Many primary vendors are providing cooperating sub agencies with terribly confusing and incomplete information regarding payroll, billing and payment. The subs are burning up dozens and dozens of hours trying to make sense out of the gobbledygook data reports the primary vendors are putting out. Until things can be sorted out, many primaries hold onto the subs’ money. Fortunately for them, things never seem to get totally sorted out. Quite common are complaints that many primary vendors “do not pay according to a payment schedule,” but rather “whenever they want to.” And they always seem to underpay according to the subs.
When looking at all the data reports closer, subs have found that primary vendors bill the customer at the pay rate rather than the bill rate. Associate suppliers have frustratingly found primary vendors making up their very own new rules and decisions about when overtime is accepted and paid.
No matter how hard they try, numerous subcontractors have not been able to reconcile their accounts with some of the primary vendors. They repeatedly call the primary’s accounts payable departments and various levels of management, and all they ever get is message machines and voice mail. If they do get a human, answers are rarely quick, concise and/or complete.
A good example of the information breakdown is with timecards. A few years ago, temp hours would be reported on the subcontractor agency’s timecard, and the subcontractor would get paid from this information. Today, hours worked by a temp may be reported on the subcontractor agency’s timecard, and also on the primary vendor’s own timecard. When the primary agency determines what to pay, they often completely ignore the information on the subcontractor agency’s timecard. The sub may spend days trying to match up the hours. When there are discrepancies in the timecards, they most always discover that the primary vendor agency underpaid and under-billed.
The information smoke and mirrors that the primary vendors are churning out hurts in other ways. Banks, funders and investors that support the smaller and medium-sized agencies charge back these “primary vendor agency extremely slow pays” to the subcontractor, thus limiting funds for payroll and growth. Many really don’t want to fund this kind of payroll-receivables business paper because, if there are financial problems, they can’t collect on it quickly.
So far we have not seen any strong commitment by the largest primary vendors to resolve the problems and pay quickly. Eventually they may discover that it is in their own best interest. Until then, delay-the-pay tactics can ultimately drive smaller unaware associate suppliers out of business. Be careful!