The advantages of contracting direct with clients

During your contracting career, you may have the opportunity to work for a client directly, without the involvement of a recruitment agency. Here we look at the benefits of working direct, and address some of the pitfalls.

Thanks to Brian Stalley, co-founder of Contract Spy, for answering our questions. Contract Spy monitors over 1800 Company websites and over 70 Job Boards to identify agency-free contract roles.

If you work direct, can you keep the margin an agency would usually pocket?

With agencies taking around 15-20% of the gross payment made by the client, then there is certainly plenty of room to set a rate that would be 5-10% higher than your usual agency rate as an opening gambit. This would still see the client make a saving compared to going through an agency, so the deal is advantageous to both parties.

What benefits are there to working direct?

We’ve already touched upon the potential financial advantage but the benefits are many-fold. One of the main ones being that you own the client relationship, not an agency, so you are free to set up any repeat business and future work directly yourself. If you contract through an agency, both you and the client will be prevented from doing this via a restrictive covenant or “handcuff” clause in the contract, which will survive the end of the contract by 6 months or more. Many established contractors work on building a portfolio of direct clients who are able to provide them with a steady stream of work. Owning the client relationship also means that you can find it easier to negotiate remote working or part-time working, things which an agency isn’t generally too keen to get involved with. Finding your own clients, and especially negotiating your own terms and conditions of business with a client, is demonstrating that you are in business of your own account, a sign-post away from IR35.

On the flip side, many contractors would find negotiating direct with a client a daunting prospect – how can this be overcome?

It’s true that Contractors do have to represent themselves in negotiations, whether that be with an agent or client. Some do find it easier to negotiate via a third party, but there are many who prefer to deal directly with clients as there is less scope for misunderstandings and being misrepresented. Like most things, it does get easier with experience.

What if things go wrong and you don’t have an agency to fight your corner if payments are late, etc?

Contractors considering going direct should do their homework on the client’s financials, particularly if the company isn’t a household name and has no real financial visibility. However, it’s quite inexpensive to run a credit check on the client company to gain peace of mind that the company isn’t about to go under. It also helps to “walk through” your first invoice with the client, so you are 100% clear on the process your invoice needs to follow, which will minimise the risk of any delays to payment, and introduce you to the people who can help with any later queries.

How do you go about finding direct contract work?

Traditionally, word of direct opportunities has only been passed on by word of mouth, where one contractor passes details of an opening to another, so contractors should always look to build their network of other contractors. Direct Contracts are also increasingly advertised by clients, though they are often scattered across many job boards and individual client sites, so here a service like Contract Spy, which aggregates all potential openings, is well worth considering for new and experienced contractors alike.

What about the contract itself?

If you don’t have a suitable contract already drafted from previous assignments, it is always worth investigating the services of a professional to draft your contract, especially your first direct assignment. Most contractors fall into the trap of signing whatever terms the client puts in front of them, however, this misses an opportunity to have the client agree to your Terms of Business, which is a clear pointer to being in business on your own account, and a sign-post away from IR35.

Partner Contractor Accountants

Last updated: 15th June 2019