Despite challenging times ahead next year for businesses with a recession on the horizon, recruitment agencies tend to thrive as company’s require short term temporary staff to fulfil jobs.
It’s certainly an opportunity for recruitment agencies to grow and many will prosper by capitalising on the rapid shift towards temporary staffing, but this though can put a strain on cashflow as temporary workers are traditionally paid on a weekly basis rather than the standard 30+ days that clients will take to pay. This is where invoice factoring can help your recruitment agency bridge this gap and be an efficient way to fund and grow your business.
According to research a common reason for employment agencies to go into liquidation or administration is the cash flow difficulties in paying temporary employees. Recruitment invoice factoring is an accessible and cost-effective means of financing your growth and unlike loans from banks, which often have extended payment terms and penalties for early payment, invoice factoring can operate on a short-term contract and set fees, so you always have a predictable cash flow.
So, what is invoice factoring?
Invoice factoring is where an agreement is arranged between your business and the lender where they, in essence, buy the invoice from you for up to 95% of the invoice cost. The lender will then recoup the funds from your customer on the terms of the invoice, ensuring constant income into the business.
Essentially, the recruitment agency will pay a fee to the factoring company, and, in return, the factoring company pays you the vast majority of the invoice value shortly after it’s sent to them. Your client then pays their fee to the factoring company.
So, while using recruitment factoring is a direct cost it can be well worth it particularly if you are relying on delayed payments in order to pay your temporary staff ensuring there is a steady flow of cash coming into the business.
Invoice factoring options
If you’re considering invoice factoring for your recruitment business, you’ll need to decide whether you’re looking for invoice factoring or invoice discounting.
Invoice factoring is where the customer pays the factor-company directly. In invoice discounting, the customer pays the recruitment agency as normal. In invoice factoring, services like full sales ledger and collections service are available. In invoice discounting, these services are not included and is therefore a cheaper option. It also enables recruitment agencies to retain direct contact with clients ensuring they will not know you use a finance company.
At InvestGrow Financial Services we have a large number of lenders in our portfolio that can help businesses keep their capital flowing by using this simple process. A factoring arrangement with a company that builds a relationship with its clients can be a great asset to use and enables your finances to remain current to its requirements.
The benefits of invoice factoring for recruitment agencies
Running a recruitment agency can be hard, with many different challenges being thrown at you. From managing your office team, to making sure your contractors are happy and paid on time, to client development and growth, this never-ending list can be overwhelming. This is where invoice factoring for recruitment really comes into its own. Some of the benefits include:
- Finance new opportunities
- Attract bigger clients by hiring more staff
- Improve or add to the business infrastructure
- Pay suppliers on time and negotiate better deals
- Reduce the administrative burden of chasing debt
- On-line process and cash paid into your account same day / next day
- Facility available to newly started business with turnover from just £100K per annum
- Bad debt insurance can be included if necessary, to give additional peace of mind
- Reduced finance costs over traditional overdraft facilities
- Easy to set up and the service can be operational within 7 – 10 working days
Invoice factoring is fast and flexible, raising finance against unpaid client invoices that can be used to pay the wage bill on time. This type of finance can advance funds tied up in an unpaid client invoice within 24 hours of it being issued, unlocking funds early and effectively transferring the payment delay on to the provider.
For further information on how invoice factoring can help your recruitment agency, please contact us here.