Invoice finance for recruitment agencies

The payroll gap

A contract desk placing twenty contractors carries the wage bill every week while waiting thirty to sixty days for client payment. Growth makes it worse, because each new placement widens the gap before it fills. Profitable agencies fail here more often than unprofitable ones.

Receivables funding turns that timing problem into a facility that scales with the ledger. Raise the invoice, draw the advance, pay the contractors.

How the facility works in practice

Funders advance a percentage of approved invoices, commonly eighty five to ninety per cent in recruitment because the debtors are usually solid corporates. The balance is released when the client pays, less the service fee and the discount charge.

Many sector funders go further and run payroll, timesheet processing and credit control as part of the service. For a growing agency without a back office that bundle is often worth more than the funding line itself.

What funders check

Client quality comes first, since repayment comes from them rather than from you. Concentration is examined next: one client at sixty per cent of the ledger will attract a lower limit on that debtor.

Then come the contracts. Right to assign, absence of pay when paid terms, clear timesheet authorisation and a workable dispute process all matter. Funders also test the split between permanent placement fees and contract billing, since permanent fees carry higher dispute risk and are often funded at a lower rate or excluded.

What it costs

Expect a service fee on turnover plus a discount charge on funds drawn over a reference rate. Bundled payroll services carry an additional cost that should be measured against the salary of the staff you would otherwise employ.

Compare on total annual cost, including minimum fees, termination notice and any audit charges. Headline rates in this sector conceal a lot.

Getting the facility in place quickly

Prepare an aged debtor listing, a sample of client contracts, recent bank statements, current management accounts and a summary of your timesheet and billing process. A facility can be live within two weeks when that pack exists on day one.