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!