Recruitment agency finance is extremely hard to find for many small agencies in the UK.
Cashflow is the lifeblood of your start-up, as it is for organisations in any industry. Fast access to outstanding debt will free up your finances and allow you to:
Perhaps most importantly, it also means you can pay wages on time.
Recruiting for permanent positions is no problem in this respect. You are not responsible for paying their wages. On the other hand, the necessity to pay the wages of your temporary employees can often cause the biggest cashflow issue.
Pausing for Peter to Pay Paul
As you know, clients can take months to clear an invoice. This is especially true at the beginning of a placement as many companies insist on having a probationary period. Contracts will not wait to be paid though and you need to pay your temps on time. How can this be possible if there is little available finance and you are waiting for customers to settle their related invoices? It’s like pausing for Peter so you can pay Paul. One effective solution to this issue is invoice factoring.
What is Invoice Factoring?
Rather than wait for invoices to clear, you can effectively sell them to a third party funder. The funder can release up to 90% of the value of your invoices upfront. This provides access to your money and leaves the funder to chase the full value of the invoice from your customer. Once the customer clears payment the funder will then release the rest of the invoice value to you. This means you do not necessarily require an accounts receivable department, as your funder can facilitate this.
What is the Catch?
There is no catch. There are of course fees involved, but these are transparent and extremely competitive. When compared with other financing options, such as bank overdrafts, invoice factoring is an extremely cost effective solution. You do not have to tarnish the relationship you have with customers either. Invoice discounting is almost identical to invoice factoring; only you remain in charge of accounts receivable and credit control.
The Benefit of Invoice Discounting
The ability to manage your own credit control is the biggest benefit of invoice discounting. It means you can maintain solid relationships with clients through relaxed credit chasing methods. The funder will still manage the actual collection process, but you will conduct the communications. The process itself looks a little something like this:
Another option is a process called confidential invoice discounting. It is exactly the same process, only the funder will handle communications as a representative of your business. So you can concentrate on other matters and still maintain that customer-supplier relationship.
What are the Costs?
Invoice factoring and discounting are both cost effective solutions to accessing recruitment agency finance. Fees are totally transparent and tailored to meet the needs of your agency. The cost will be broken down into two categories, service fees and a charge that is relative to the amount of fund you receive.
Contact us today for more details on how invoice factoring can work for you. Call us on 0333 305 9513 or visit Simply Factoring Brokers.