Recruitment agencies, whether they are a start-up or have been established for a number of years, face the same problem - cash flow. Customer invoices are more likjely to paid closer to 90 days , temporary staff and contractors expect to be paid weekly, which inevitably puts a strain on cashflow, and will also hinder growth and expansion.
There are a number of finance products available to recruitment agencies, including factoring, invoice discounting and managed payroll.
Factoring and invoice discounting agreements are common and have been used for many years. They let agencies to finance their contract business by allowing them to access funds tied up in invoices and so ‘get paid earlier’. Solid relationships between the lender and the agency have driven growth, and enabled agencies to pitch for larger contracts.
An alternative option is the use of payroll facilities, which is designed for agencies who have temporary staff. The agency receives the payment for every invoice it issues, usually within 24 hours, which allows them to pay their temporary staff every week thereby relieving all cash-flow pressure. This approach can also release the agency from the burden of back office administration, as internal credit control teams (provided by the lender) chasing payment, and manage timesheets, payroll and invoicing.
However, there are a myriad of options offered by lenders, so it is really important the business seeks advice from specialists who have deep experience of recruitment, who can guide them through one of the most critical business funding decisions they will ever make.