Estimating placement fee rebates before they happen
How a recruitment agency estimates the placement fee income it may have to give back when candidates leave during the guarantee period, and records it.
By Achekam · · 5 min read · For Recruitment businesses in South Africa, Nigeria, Kenya
A permanent placement looks like the cleanest income an agency earns. The candidate starts, the invoice goes out, the client pays. But most placement terms carry a promise: if the candidate resigns or is dismissed within an agreed guarantee period, the agency gives back part of the fee or finds a replacement.
Most placements survive the guarantee period. A few do not, and when they fail, the rebate lands in a later month than the fee did. The result is a month of strong revenue followed, weeks later, by a credit note that drags another month down. If several early leavers cluster at a year end, last year's profit was overstated and this year's understated. There is a better way to show it.
Why part of every fee is uncertain
Investopedia notes that independent third-party recruiters are often paid on contingency, earning a fee only if their candidate is hired, and that the fee is commonly a percentage of the new hire's first-year salary. The hire triggers the fee. The rebate clause then makes part of that fee conditional on what happens next, which is outside the agency's control: whether the candidate likes the job, and whether the client keeps them.
On the day you invoice, you do not know whether you will keep the full amount. You know only that, across all your placements, some share of fees has historically been given back.
IFRS 15: revenue at the amount you expect to keep
IFRS 15 says an entity recognises revenue in an amount that reflects the consideration to which it expects to be entitled in exchange for the goods or services transferred. Where the consideration includes a variable amount, the entity must estimate the amount it expects to be entitled to.
A rebate clause is exactly that kind of variable amount. The fee on the invoice is the most the agency can earn. The revenue it should show is the amount it expects to keep after likely rebates.
Expected value, most likely amount and "highly probable"
ACCA explains that under IFRS 15 variable consideration is estimated either as the expected value or as the most likely amount, and is included in the transaction price only to the extent that it is highly probable that a significant revenue reversal will not occur. ACCA's article revisiting IFRS 15 explains both methods and the constraint.
For placement rebates the choice is usually practical:
- Expected value suits an agency making many similar placements, such as contact-centre staff or junior accountants. Across the whole group, a predictable share of fees comes back.
- Most likely amount suits a single large search, such as a senior executive, where the candidate either stays through the guarantee period or does not.
The "highly probable" test is a brake on optimism. If your history is thin, or a client has a record of letting new hires go quickly, hold back more of the fee until the guarantee period has passed.
Your own early-leaver record is the evidence
The estimate should come from the agency's own data, not from a figure someone heard at a conference. Pull together, for the past year or two of placements:
- Each placement, its fee and its start date.
- Whether a rebate was given, how much, and when in the guarantee period the candidate left.
- The type of role, the client and the consultant.
From that you can see what share of fees has historically been given back, and whether the share differs by role type or client. A client with high staff turnover deserves its own, more cautious rate. Write the method down, with the date and the data used, so your accountant and any auditor can follow it.
If the terms promise a free replacement rather than a refund, the agency gives a service instead of money. Discuss with your accountant how that promise is reflected, because it is not the same as a cash rebate.
Recording the estimate and the actual rebate in Achekam
The placement invoice is issued for the full fee. In Achekam, issuing an invoice takes the next number in its sequence and posts it to the ledger as debtors, sales and output VAT, so the full fee is in the books the day it is invoiced.
At month end, the estimate is posted as a manual journal: it reduces placement revenue and raises a liability for rebates the agency expects to give. Agree the account names with your accountant. Achekam refuses a journal that does not balance or is dated in a closed month, and a posted journal is corrected only by reversing it, so each month's estimate is visible on the record.
When a candidate leaves and a rebate is actually given, issue a credit note from the original placement invoice, in full or for the lines concerned. The credit note is posted to the ledger and can be downloaded as a PDF or e-mailed to the client, with any leftover credit held for the client against future invoices. There is no credit note without an invoice, which keeps every rebate tied to the placement that caused it.
The credit note reduces revenue itself, so release the matching part of the estimate at the same time. Otherwise the same rebate is counted twice.
A worked example in words. The agency invoices the full fee for a placement in March. Its records show that a small share of fees on similar roles has come back in the past, so the March estimate journal holds back that share as a liability. In May the candidate resigns within the guarantee period. The agency issues a credit note for the rebate under its terms, and releases the part of the estimate that related to that placement. March's revenue was shown at what the agency expected to keep, and May is not hit by a surprise.
Reviewing the estimate as guarantee periods end
The liability should shrink as placements pass the end of their guarantee period without a claim. Each month, list the placements still inside the period, apply your rate to their fees, and compare the answer with the balance on the liability account. Adjust the difference by journal.
The management accounts then show placement revenue net of the estimate. Achekam's management accounts give an income statement for a chosen period beside the period before, and a balance sheet at period end, exportable as PDF or CSV, so the rebate liability sits on the balance sheet where the owner and lender can see it.
A rate to start with
Build the early-leaver table from last year's placements this month, and agree the method with your accountant before year end. When a rebate is actually claimed, the steps are in handling a placement rebate for an early leaver, and the timing of the original invoice is covered in when to issue a placement invoice.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
