The Chimes Conundrum in a nutshell
It’s all about the payments.
The Chimes conundrum shows that the TOTAL OUTSOURCING of an organization’s contingent workforce activities - including and most especially payments - can prove disastrous should something happen to the vendor.
There are many reasons why a company should use a VMS or an MSP: streamlined processes, risk mitigation, supplier management. An MSP can be a cost-effective interface to simplify processes for a client when dealing with multiple vendors. Keyword being INTERFACE.
Siphoning payments through a single entity is not only unnecessary, it makes as much sense as depositing money in an uninsured bank.
January 13th, 2008 in
Chimes Chapter 7, Opinions and Observations
The situation with ECG has certainly exposed a great deal of risks affecting their clients to their employees to staffing suppliers.
In this aftermath, clients may struggle more with some of the interim process changes than they will reverting to previous payment methods and recipients. Immediate change management for those process changes can save time and money with some inefficient and poorly implemented interim solutions.
Regarding payments through a single entity, I know from WorkforceLogic’s experience, that this is a great benefit to many clients relieving a great deal of workload from their AP teams allowing them to realize some great cost savings. You make a good point, however, that it creates in a new risk in the case of a Chapter 7.
Customers should have open dialogue about these potential risks with their MSP or VMS providers. WorkforceLogic is eager to help employees, clients and staffing suppliers of ECG with these and other issues in the immediate future.
WorkforceLogic: Call us at 1-866-296-3343 for details.
http://www.workforcelogic.com
I agree with you, Lisa, that siphoning all the payments through the MSP might not really make sense.
I wonder if the reason why most MSP/VMS’s do siphon all the funds through themselves is a result of MSP/VMS’s evolution from staffing agencies and their master-vendor/VOP programs. It makes sense to have all the cash flow through an agency. Agencies have to pay out expenses at irregular times, such as taxes, accruals, and withholdings, whereas an MSP just pays out what the agencies invoice them. Also, agencies cut a huge number of checks… to all the different tax and benefits authorities, in addition to the individual contractors. Compared to agencies, MSP’s have a relatively small number of payments to make.
The model that works for staffing agencies may be wrong for MSP/VMS’s. Perhaps there are invoicing/payment approaches that can create less risk for the agencies, client, and MSP.
For example, the MSP could continue managing all the administration required to collect time, reconcile agency invoices, and consolidate information for the client, however they could allow the client to actually pay the agencies directly (and pay the MSP their fee directly). If you take out all the other administrative work, the burden of cutting the extra checks to the individual agencies may not be much more than the one check to the MSP they pay now.
Another approach may be to setup a kind of joint checking or escrow account that the MSP and client share. The MSP could manage the transactions, but the client could own the money (or at least have visibility to it and assurances that it was actually being reserved to pay the agencies).
Unless an MSP’s business model is to profit off the float, they should be happy to relinquish the responsibility of handling so much cash.
I imagine there could be contractual issues with these approaches. That is, if the contracts are between the MPS and the agencies, it might cause problems to have the client pay the agency (whom they don’t directly have a contract with).
Have you or anyone else heard of MSP/VMS’s working in creative arrangements like these? Perhaps some of the pure VMS software companies operate more like this?
Brandon Gallagher
Covelo
http://www.covelogroup.com