What is recruitment factoring and why do we do ours in house?

Why is factoring for recruitment companies so important?

Factoring is a crucial service a new contract recruitment agency needs to get on top of. But, that can be easier said than done as factoring services through the traditional third-party route can involve complex processes, multiple levels of decision-making and a lot of chasing your tail – that’s why we do factoring for our partner agencies in house!

In this blog, I look at what exactly factoring for recruitment agencies is, why it’s important and why we do it in house. 

What is factoring for recruitment companies?

At its most basic, factoring is a financial service that gives companies access to funds based on future income. Factoring for recruitment companies is no different in principle, but there is scope to add in additional services, like invoice support, timesheet management and credit control. 

How does recruitment factoring work? If you invoice a client, you will likely have payment terms of at least 30 days in your supplier agreement. Over those 30 days, you may incur costs related to that service, like paying contractors etc. You can get factoring for permanent recruitment, but this is a lot harder to get and a lot more expensive. The reason being that any decent perm recruitment business shouldn’t need help with their cashflow, so factoring companies will see this as high risk, and for high risk they need big rewards, so higher charges!

Factoring gives you immediate capital based on the outstanding invoice. Decisions on whether or not to provide factoring are based on the credit and perceived reliability of the your client. If your client is a large multinational company, you are more likely to obtain credit from one of the larger third-party factoring companies than if your client is a smaller start-up with little credit history. 

That’s where our in house factoring comes into play…

The ability to obtain access to capital based on invoiced work allows contract recruiters to pay their contractors

What are the benefits of in house factoring for our recruitment agencies?

The experience of Davidson Gray and many of our partners is that factoring companies for recruitment lack the flexibility needed to capitalise on all the business you win. They are often extremely risk-averse which means they can turn down business you’ve secured with very credible clients. Factoring companies are lenders at the end of the day so they all too often have the “computer says no” approach you get with some banks and financial institutions where they just will not listen to reason because of the pre-set rigid processes and protocols

Credit insurance is of particular importance in recruitment factoring. If you find yourself with contractor disputes, queried invoices or even a client entering insolvency, you absolutely need financial protection. Insurance is another area where we have found decision making lacked either a human element or even, in some cases, insurance companies don’t cover some scenarios you would expect, which leaves you with potentially a business breaking bill. 

We felt that by bringing our factoring services in house, we could make flexible decisions based on more than credit history and add a more human element to the decision making process. This, in turn, means our partners can enter into agreements with the knowledge that they are likely to get the needed factoring and credit insurance. 

In addition to this human element, we wanted to design a recruitment factoring process that was as quick and straightforward as possible – not just to get a decision on capital and insurance but also across the whole pay and bill process. So, our recruitment factoring provides our partners with a streamlined service which can invoice clients, pay candidates and pays profit/margin on the same day contractors are paid.  

Each partner also receives a dedicated point of contact that is on hand when they need it, so they are assured of a quick answer on any query or if they have an urgent request to process. This personalised service means our partners do not need to chase responses through multiple people and levels of authorisation to find the answer they need.

Many of our partners work globally; we wanted to offer payments in as many currencies as possible. With many traditional factoring companies for recruitment only offering payments in 3 main currencies (GBP, EUR or USD), this was a big advantage straight away for our partner agencies. 

Our partners receive a dedicated manager to help them with factoring queries, decisions and to solve issues quickly when they need it

How our in house recruitment factoring works

We weren’t seeking to revolutionise how factoring for recruitment companies works – we just saw how badly factoring companies work and simply wanted to do it a lot better. This means it helps the businesses we support to win more business and takes out the stress of dealing with the inflexible frustrating factoring companies.

Our personalised and tailored approach gives flexibility and speed that larger providers just can’t offer. By bringing factoring in house, it also helps us align with the end-to-end process, ensuring that there are no discrepancies, anomalies or queries further down the line. And, if there are, we can pick them up and rectify them earlier in the process. 

This focus on our partners allows us to offer dedicated resources to each client, giving them online portals tailored to their clients and giving us the flexibility to create a more bespoke factoring service such as offering payments in multiple currencies or quicker turnaround on credit decisions.

Some particulars of our recruitment factoring service include:

  • Dedicated and experienced in house team to answer any queries
  • Inclusive credit insurance
  • Internal and external timesheets cover 
  • A comprehensive credit control system ensuring no invoices slip the net and we are right on top of quick cash collection
  • Quick turnaround on credit decisions for new clients making a lot easier when looking to win new business, especially if the client needs the contractor ASAP
  • Pay-outs in multi-currency – we can even invoice in one currency and pay in another
  • Compliance checks on contracts before signature to ensure partners are protected for the use of internal timesheets, payment days etc
  • One fee on gross invoice value – we have a transparent cost structure with no hidden fees and regularly review the fees in line with the Bank of England base rate
  • Our compliance team will review all external terms of business before signing
  • Online timesheets make the approval of time as easy and painless as possible
  • We offer weekly timesheets with monthly payments

Quicker decision making and response times allows our partners to focus on winning more business in the knowledge they will get the factoring they need.

Want to know more about our recruitment factoring?

We do not offer our recruitment factoring to any businesses that we don’t support as part of our core business, which is helping set up and grow recruitment businesses. The reason is simple, we decided to offer this service with the main objective of improving even more on the support we give to our partner businesses. We get our kicks out of making our business partners wealthy in a stress-free environment, so do not want to dilute the part we are really good at!

If you are a recruiter thinking of setting up your own new recruitment business, you can find out about our factoring service and the other aspects of recruitment start-up support we provide such as mentoring, marketing and brand building. We are always looking for new ways to add more and more value to the recruitment start-ups we support – find out how we could help make your dream of running your own recruitment agency a reality. 

Rhys Jones

Written by Rhys Jones Managing Director – Davidson Gray

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