Invoice finance is an invaluable tool for both established and new start temporary recruitment agencies. It allows you to release up to 80% - 100% (dependent on funder) of the invoice value immediately.
Temporary recruitment agencies have a particular need for flexible working capital. Often they will have the responsibility for the weekly payroll of the candidates they place, usually within 2 weeks of placement, whereas they may not actually get paid for the placements for up to 3 or 4 months later. This funding gap can be very difficult to bridge without additional financial support.
Many new start recruitment agencies will arrange for a invoice factoring facility to be set up alongside the establishment of the new company; this dramatically reduces the amount of start-up capital required. Instead of waiting for the first invoices to be paid, which may in turn reduce the recruitment company’s ability to take on more work and grow rapidly, they can access the funds immediately and have confidence that they can satisfy the payroll requirements of any additional work they undertake.
Funding via other methods is especially difficult for any new start company, recruitment or otherwise, as banks tend to require a trading history before providing an overdraft facility. Even in the instances where an overdraft facility is offered it is often very limited until the company can provide detailed financial information to their bank often in the form of the first set of accounts produced.
There are 3 main invoice finance facilities for temporary recruitment companies:
In some cases due to a relatively small number of customers or the size of turnover the difference in price of invoice discounting compared to factoring can be negligible. Our consultants at First Financial can talk you through the potential cost implications of each of these services and help you to decide which will be the most cost effective solution for your needs.