Introduction
In recruitment, commission payments are often a source of tension between consultants and agencies. One of the most debated structures is the Pay-When-Paid (PWP) model, where recruiters receive their commissions only after the client has settled their invoice.
On the surface, PWP seems like a logical approach to managing cash flow and reducing financial risk for the agency. However, many recruiters dislike PWP, arguing that it delays earnings and reduces motivation. Not only that, but in many cases PWP doesn't make a lot of sense. The reasons behind this explain why only around 25% of UK recruiters have a PWP model.
This article explores the pros and cons of PWP, why some agencies swear by it, and whether it’s the right model for your recruitment firm.
What is Pay-When-Paid (PWP)?
The Pay-When-Paid model means that consultants only receive commission payments after the client has settled the invoice.
For example:
- A consultant places a candidate and generates a £10,000 fee.
- The client has 60 days to pay the invoice.
- The consultant doesn’t receive their commission until the client pays.
This differs from traditional commission models, where consultants earn commission shortly after a deal is invoiced, regardless of when payment is received.
Why Some Agencies Use PWP
Many recruitment agencies, particularly those working with large corporate clients or long payment cycles, have adopted PWP models to protect their cash flow and profitability.
1. Protecting Cash Flow & Reducing Financial Risk
- Some clients take 30, 60, or even 90 days to pay invoices.
- If agencies pay commissions before receiving client payment, they risk cash flow problems.
- Agencies working with very large placement fees find PWP particularly useful.
✅ Benefit: The agency avoids paying out large sums in commissions before cash is received.
2. Preventing Clawbacks from Unpaid Invoices
- If a client fails to pay or goes bankrupt quickly after the placement, agencies may lose money and then have to claw back any commissions paid.
- With PWP, commissions are only paid if cash is actually received.
✅ Benefit: PWP eliminates the risk of paying commissions on invoices that never get settled.
3. Aligning Recruiter Payouts with Agency Cashflow
- Traditional payment models prioritise performance over cashflow positivity.
- With PWP, recruiters only "earn" when the agency "earns", aligning consultant behaviours with improved cashflow if that is desireable.
✅ Benefit: The agency and recruiters share financial risk, creating a more sustainable model.
The Downsides of Pay-When-Paid
While PWP protects cash flow and business stability, it also comes with major downsides—particularly around consultant motivation and retention.
1. Delayed Payments Demotivate Recruiters
- Consultants work on the immediacy of reward.
- If they close a deal but don’t see commission for months, their motivation can plummet.
- This is especially true in industries where long payment cycles (60-90 days) are common.
🔴 Risk: Recruiters may lose engagement, knowing they won’t see earnings for months.
2. Increased Turnover – Recruiters Will Leave for Better Plans
- 84% of agencies offer commission payouts the month following a placement/invoice/timesheet.
- If competitors pay commissions faster, top recruiters may switch firms.
🔴 Risk: High turnover rates, especially among top billers who rely on quick earnings.
3. Creates Financial Uncertainty for Consultants
- Consultants who rely on commissions for monthly income may struggle with irregular payments.
- Some may hesitate to accept jobs in PWP agencies because they can’t predict their earnings.
🔴 Risk: Agencies using PWP struggle to attract and retain experienced recruiters.
4. Credit Control is not Typically a Consultants Job
- If consultants know they only get paid after the client pays, they are incentivised to prioritise faster-paying clients, even if they aren’t the best business opportunities.
- This can lead to short-term thinking, rather than focusing on high-value long-term clients.
- They are additionally incentivised to partake in the Credit Control process, which is not normally a desired behaviour, creating distraction away from revenue generating activites.
🔴 Risk: Lower-quality placements, and reduced performance as recruiters focus on quick turnaround deals and lose time to activity that doesn't generate revenue.
Alternatives to Full Pay-When-Paid Models
If you’re concerned about cash flow but still want to keep recruiters motivated, consider hybrid models.
1. Split Commission Payments (Partial PWP)
- Instead of waiting for full client payment, split commission payments into two stages:
- 50% paid at placement (deal closing).
- 50% paid when the client settles the invoice or a period or two later.
✅ Why it works:
- Recruiters get immediate earnings, maintaining motivation.
- The agency still protects cash flow by withholding part of the commission.
2. Improvements to the Credit Control Process
- If the issue is long delays to customer payments, it may be that trying to solve it with commission is focussing on symptoms and not cause.
- Reviewing the invoicing process from contractual payment terms to credit control procedures may be the right course of action instead .
✅ Why it works:
- Consultants aren't negatively impacted by elements (typically) outside of their control
- The agency benefits from improved cashflow right at the source
3. Align With Your Cashflow Reality
- If you don't have extreme cashflow issues, Instead of using PWP a reasonable delay between placement and commission payout which aligns with your real world average debtor days might be a much better option
- If the average is 45 days, for example, then paying 2 month in arrears would be sensible
- There will always be exceptions, but consider optimising for the rule
✅ Why it works:
- Reduces cash flow issues while still rewarding consultants fairly.
Should Your Agency Use Pay-When-Paid? Key Questions to Ask
If you’re considering PWP or alternative models, ask:
✅ How long are our average client payment terms? (30, 60, 90 days?)
✅ How long are our average debtor days?
✅ Would a full PWP model hurt recruiter motivation?
✅ Might a longer period of arrears be a better option?
✅ Are there improvements you can make to your credit control process?
If cashflow isn’t a MAJOR issue, an alternative to PWP may be a better long-term solution.
Final Thoughts: Finding the Right Balance
The Pay-When-Paid model reduces financial risk for agencies, but it can also damage recruiter motivation, behaviours and retention.
✅ PWP works well for agencies with cash flow concerns.
✅ Full PWP can hurt recruiter morale, other models are often better.
✅ Alternatives like split commissions or longer arrears are great options
💡 Next Steps:
🔹 Evaluate your current commission payout model.
🔹 Consider if delayed payments are impacting recruiter retention.
🔹 Download your free copy of our Commission Census for more insights!
🚀 A recruitment agency’s success depends on motivated consultants. The right commission structure ensures both agency and recruiter win!