Paying day-rate contractors and billing the client
How a recruitment agency records a day-rate contractor's invoice as a bill, invoices the client for the same days, and pays the contractor.
By Achekam · · 4 min read · For Recruitment businesses in South Africa, Nigeria, Kenya
An agency places an IT specialist with a client for three months on a day rate. The specialist runs her own company, sends the agency an invoice for the days she worked each month, and expects to be paid. The agency, in turn, invoices the client for the same days at a higher rate. The difference between the two is the agency's margin, and it is earned only if both sides are recorded correctly and nothing is missed, doubled or paid before the money is safe.
Contractors who invoice the agency are a different money flow from temps on the agency's payroll, and mixing the two up causes most of the trouble.
Contractor or temp: why the money flow differs
| Temp on payroll | Contractor who invoices | |
|---|---|---|
| Relationship with the agency | Employee | Supplier |
| How they are paid | Through the pay run | Against their invoice, as a bill |
| Tax deducted by the agency | Employees' tax through payroll | Depends on country and status; take advice |
| VAT | None on wages | On their invoice, only if they are registered |
| Agency's cost in the books | Wages | Contractor costs |
Whether a person is genuinely a contractor or in substance an employee is a question of fact and tax law, not of what the agreement calls them. Settle it with your adviser for each contractor, in writing, before the first invoice. The rest of this article assumes the contractor genuinely invoices as a business.
The contractor on the supplier list once
A business keeps one supplier list with duplicate checks by name or VAT number, and quotations, orders and bills pick suppliers from it.
Set the contractor up once, carefully:
- the legal name of the contractor's company, or their own name if they trade as individuals;
- VAT number if registered, and tax number;
- bank details, confirmed by a call to a number you already hold, not from an e-mail;
- the signed contract, with the day rate, the client and the end date.
Two records for the same contractor, one under a company name and one under a personal name, is how an invoice gets paid twice. If the duplicate check flags a match, stop and look.
ACCA's article on supplier statement reconciliations explains why a separate record of each credit supplier must be kept and how reconciling supplier statements to those records helps find errors. For contractors who invoice monthly, a quarterly reconciliation of their statement against your bills catches a missed or doubled invoice early.
Recording the contractor's invoice as a bill, protected against posting twice
When the contractor's invoice arrives, check it against the client's approved timesheet for the same period: same days, same dates, the agreed rate. Then record it.
A business records supplier bills line by line with VAT. A bill without a purchase order waits for approval before it posts, and can be paid in full or in parts from a chosen bank account.
Purchase orders add protection for a long assignment. Where the agency raises a purchase order for the contractor's work, posting the matched supplier invoice puts it in the ledger as expense, input VAT and trade payables, and the supplier's invoice number stops it being posted twice. A contractor who resends last month's invoice "in case it got lost" cannot then be paid for it a second time by accident.
Without a purchase order, the approver is the safeguard. Before approving, check that no bill with the same invoice number or the same period already exists for that contractor.
Invoicing the client for the same days
The client is billed for exactly the days the contractor's invoice covers, at the agency's charge-out rate. A business creates customer invoices as drafts it can change or delete; issuing one takes the next number in its sequence and posts it to the ledger as debtors, sales and output VAT.
Habits that keep the two sides in step:
- Invoice the client from the same approved timesheet that supports the contractor's invoice.
- Put the contractor's name, the period and the number of days on the client's invoice line.
- Issue the client's invoice no later than the contractor's bill is approved.
- Each month, compare days billed to the client with days paid to the contractor. They should match.
A mismatch in step 4 means either lost revenue or a payment the client is not funding. Margins on this kind of work are easiest to read from the ledger, as described in temp margins from the ledger. Where temps on payroll are billed weekly, the same disciplines apply; see weekly client invoices.
Paying the contractor once the client has paid, if your terms allow
Many agencies' contracts with contractors say the contractor is paid after the client pays the agency, or within a set number of days of the invoice, whichever is agreed. Know what your contract says and keep to it.
When the client pays, record the receipt against the client's invoice. A business records customer payments against one invoice or spread across a customer's invoices, and a part payment leaves the invoice part-paid. A short payment from the client is a reason to find out why before paying the contractor in full.
Then pay the contractor. Paying a supplier in Achekam only records the payment; no bank payment file is produced for suppliers. Make the transfer from online banking and record it against the bill, from the account the money left, on the same day.
A monthly contractor routine
- Receive the client-approved timesheet.
- Receive and check the contractor's invoice against it.
- Record and approve the bill; issue the client's invoice.
- Record the client's payment when it arrives.
- Pay the contractor under the contract terms and record the payment.
- Compare days billed with days paid.
Choose one current contractor, run last month through this routine end to end, and fix whatever step turned out to be missing before the next month's invoices arrive.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
