7 reasons why invoice finance can help a recruitment agency

Discover the benefits of invoice finance for recruitment agencies and how it’s enabling the industry to drastically grow:

As any recruitment agency knows, “cash flow is king”. But keeping on top of it is difficult in an industry where candidates need to be paid on time and invoices can become backlogged.

However, many recruitment agencies have seemed to strike a winning formula with having an invoice finance facility put in place allowing them to pay temps’ wages on time.

With this in mind, we’ve created a handy guide to help explain what’s involved in invoice financing for recruitment companies and the benefits it can bring, particularly when it comes to growth.


What is invoice finance?

Invoice finance enables businesses to release cash from outstanding sales invoices. Instead of waiting weeks or months for payment, you can have the funds as soon as the invoice is raised.

Essentially, invoice finance is a type of asset-based lending with the asset being an invoice. For any business, cash flow can become an issue when managing overheads and paying temporary candidates and internal staff’s wages. B2B businesses tend to trade on credit terms of 30, 60 or 90 days, which is not only a long time to wait for clients to pay, but it can also create complications and uncertainty about when payment is going to be received. Payment runs get missed all the time, however recruitment agencies cannot afford to pay candidates late.

With invoice finance, you no longer have the hassle of waiting for clients to pay on time, as you can receive up to 90% of the gross invoice value immediately. In some cases, clients can receive 95% if it is necessary.

It’s a popular solution for many recruitment agencies, particularly among SMEs and emerging large-scale businesses. In fact, recent research revealed that around 27% of UK businesses with a turnover of between £1m and £500m now use invoice financing.


How invoice finance works in recruitment

When you work with an established invoice finance broker that takes time to understand your business, deploying this most suitable funding solution is simple. The process of an invoice finance facility involves the following steps:

  1. Send your invoice to an invoice finance lender
  2. They release up to 90% of the gross invoice value
  3. The agency pays the temps or forwards money to the payroll provider
  4. The remaining 10% is received once the client pays, minus the lenders charge (typically 1-3%)

For example, if the gross invoice value was £1,000 (£833.33 plus VAT)

  • Immediate cash from the lender– £900
  • Cash from the lender once the client pays – £85
  • Lender’s fee (1.5%) – £15

There are also facilities available within the recruitment sector which involve the lenders also assisting with back office, timesheet management, taxes and payroll if required. This is often referred to as a ‘pay & bill’ facility and the lender can simply forward an agency their margin left on a weekly basis after all the costs associated with running a temp desk.

The convenience of receiving cash immediately at such a low fee can help inject quick funds into your finances, helping you expand and manage any cash flow issues. Most importantly, pay your temporary staff on time.

If temporary workers aren’t paid on time (normally Friday morning), will they even turn up to work the following week? Where will this leave your agency? How will you make it up to the business you have supplied the temporary worker to? These are all constant headaches that recruiters face on a weekly basis. For temporary recruitment agencies, rule number one must be to keep the temporary workers happy and paid on time – this is where having an invoice finance facility adds true value.

Cash flow in recruitment is particularly prevalent, especially when considering most recruiters in the UK work within contingency terms. So, after all your hard work, it can take months to process the payment. It only then takes one payment run to be missed. In such a cash hungry industry, this can have a dramatic impact on the business.

Invoice finance isn’t just for temporary recruitment agencies, but it can also be utilised effectively for permanent recruitment agencies. Perm agencies often come with less outlay because the agency does not pay the candidates wages (this is up to the client/employer). However, raising finance from outstanding invoices can allow a perm agency to release cash into the business and stay on top of other overheads such as rent, internal staff’s wages, job boards, marketing costs and many other recruitment-related expenses.


7 benefits of invoice finance for recruitment agencies

In the UK, using an invoice finance facility for recruitment agencies is the most popular method of funding. Rightly so, as it releases cash quickly and the funding amount grows as the agency grows. Here are just a few of the key benefits of an invoice finance facility for a recruitment agency:

  1. Cash flow
    As mentioned earlier, the good news is that invoice finance will always provide you with a steady flow of cash. Getting paid quicker means you can funnel funds in necessary areas, whether that’s handling unforeseen overheads or expanding your company.
  1. Pay temps on time
    Temporary workers are often required to be paid weekly. How can an agency afford to do this when it takes the client 30-60 days to pay an invoice?
  1. Time is money
    Invoice factoring allows you to release funds on the day you raise the invoice. It can also help save your staff the hassle and time chasing payment from clients. Your recruitment consultant can move onto the next interview or phone call with a prospective client.
  1. Make fast payments
    Invoice finance has the potential of reducing costs by paying suppliers more promptly. Some suppliers will offer discounts if they can receive the money faster. Certain recruitment service providers might like the fact that you can pay them quicker.
  1. Customisable
    There are lots of invoice finance options available through different facilities. Your recruitment agency can tailor a facility to meet your expectations. As mentioned, some lenders can assist with timesheet portals, insurances, back office, HMRC, payroll and much more.
  1. Confidentiality
    Invoice finance gives you the choice of maintaining key relationships with clients and if required, the lender’s involvement can be confidential if your recruitment agency fits the criteria.
  1. Reduced admin
    Taking away the responsibility of chasing clients frees up your admin team to concentrate their efforts elsewhere. There are also specific recruitment lenders that can also look at the back office, timesheet uploads, raising invoices, conducting payroll and much more. All of these tasks associated with the recruitment industry take up a lot of time.

Why use an established UK-based invoice finance broker?

Contact Business Finance is a commercial finance brokerage supporting businesses across the UK. Over half of our clients are in the recruitment industry and we understand the nature of the beast. We know how important it is to work with an invoice finance lender that also understands the fast paced environment that you operate in.

With a special interest in the recruitment sector, we understand the importance of cash flow to your business. We only work with reliable lenders who also only have your best intentions at heart. We endeavour to support all recruitment agencies to receive honest, valuable, and worthwhile invoice finance facilities. With access to over 90 invoice finance lenders in the market, we can compare the market for you free of cost and ensure you get the best deal for your recruitment agency.

We offer all our recruitment clients free, impartial advice before committing with any invoice finance lender. However, we also know various other recruitment-specific service providers if your agency needs assistance in other areas. Our mission involves seeing your business succeed with competitive rates, market expertise and a wealth of experience.

So, if you’re interested in seeing how we can support the growth of your recruitment agency, give us a quick call.  

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