Understanding recruitment finance for permanent contracts

Understanding recruitment finance for permanent contracts

Recruitment agencies taking advantage of invoice finance for permanent staff contracts may still have a significant funding gap to bridge even though they do not have the need to satisfy the full payroll requirements of their candidates.   

The percentage released from each invoice using invoice finance can be up to around 80% with some funders, but it is more likely for offers to be made around the 60%/70% mark.  This reflects the additional risk to funders that is associated with permanent placements. 

The additional risk stems from the claw back policy that most permanent recruitment agencies operate, although the terms of the claw back differ from agency to agency.   It is possible the candidate may leave the employ of the company where the placement has been made before the end of the claw back period, which would trigger the claw back rebate.


Example:

ABC Ltd engages Perm Recruitment Ltd to find a new employee for them.  Perm Recruitment finds John Smith and following satisfactory interviews John Smith joins ABC Ltd.  Perm Recruitment Ltd issues an invoice for their fees to ABC Ltd.  A week after his employment begins John Smith decides to terminate his employment.  ABC Ltd can then claim that they have been invoiced for a service they have not benefitted from.

In this example Perm Recruitment Ltd operates a claw back policy as follows:

In this scenario, Perm Recruitment Ltd will be obliged to make a 100% rebate of the invoice if it has been paid or cancel the outstanding invoice if it hasn’t.  In practice what often happens is that the recruitment agency will offer a replacement at no additional cost, this is perhaps the best method to maintaining a successful on-going working relationship with your client.

From a funder’s perspective they may end up having provided funding against an invoice that is either not paid or may be refunded via a rebate, hence the lower percentage released from each invoice to account for this.


Each invoice finance lender has a different attitude to funding permanent recruitment agencies and some of the major funders of temporary recruitment agencies have little or no appetite to fund permanent placements at all. 

First Financial’s experienced team can guide you through the potential pitfalls and will always aim to introduce at least 2 lenders that have a real appetite to provide a factoring or invoice discounting facility.  This ensures that there is a competitive environment when funders provide a quotation for invoice finance, enabling you to have confidence that you have secured the best rates available.

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