Invoice Finance for Recruitment Agencies

Most recruitment agencies have diverse clients varying in size, industry and business type. Many of these companies will only engage in recruitment sporadically, which means they cannot be relied on for a steady stream of income. At times, this can make it challenging for recruitment agencies to manage cash flow.

A bigger issue still is temporary recruitment, in which the candidate remains on the payroll of the recruitment firm while carrying out their work. In these cases, the recruitment firm may find themselves with crippling cash-flow problems if the invoices are not cleared regularly.

Let’s talk about how recruitment finance can help.

What is Recruitment Finance?

Recruitment finance is a form of invoice finance that can help you make payroll on time while waiting for invoices to clear from clients. Effectively a form of short term loan, it means selling your unpaid invoices to a ‘factor’ who will advance you up to 80% immediately, then pay you the remainder once the invoice is settled.

Bridging the finance gap, this funding solution reduce administrative burden, manage seasonal fluctuations in work volume, and reduce the time it takes to manage complex compliance issues.

Top 4 UK recruitment factoring companies 2023

1. Sonovate
   • Sonovate is a leading provider of invoice factoring and asset-based lending solutions to businesses of all sizes, including recruitment agencies. They offer a range of flexible and competitive products, including same-day funding, bad debt protection, and early payment discounts.
   • Sonovate has a strong track record in the recruitment industry, with over 10,000 customers in the UK and Ireland. They are also accredited by the Recruitment & Employment Confederation (REC), which means they meet the highest standards of professionalism and ethics.
2. Bibby Financial Services
   • Bibby Financial Services is a global invoice finance provider with a long history of working with recruitment agencies. They offer a range of tailored products and services, including invoice factoring, discounting, and asset-based lending.
   • Bibby Financial Services is known for its competitive rates, flexible terms, and excellent customer service. They also have a strong track record in the recruitment industry, with over 5,000 customers in the UK.
3. Calverton Finance
   • Calverton Finance is a specialist lender that provides invoice factoring and other financial solutions to recruitment agencies. They have over 20 years of experience in the industry and a strong track record of supporting businesses of all sizes.
   • Calverton Finance offers competitive rates, flexible terms, and a dedicated team of experts who can help you find the right solution for your business.
4. Hitachi Capital
   • Hitachi Capital is a leading provider of asset-based finance solutions to businesses of all sizes. They offer a range of products and services, including invoice factoring, leasing, and rental.
   • Hitachi Capital has a strong track record in the recruitment industry, with over 2,000 customers in the UK. They offer competitive rates, flexible terms, and a dedicated team of experts who can help you find the right solution for your business.

How invoice finance can help recruitment companies with cash flow

nvoice finance can help recruitment companies with cash flow in a number of ways. Here are a few of the most common benefits:

• Access to immediate cash. With invoice finance, recruitment companies can access the funds they need to pay their bills and expenses immediately, even before their clients have paid their invoices. This can help to improve cash flow and avoid costly overdrafts or loans.
• Increased working capital. Invoice finance can also help recruitment companies to increase their working capital. This means they have more money available to invest in their business, such as hiring new staff, expanding their office space, or developing new products or services.
• Reduced risk. Invoice finance can help to reduce the risk of bad debts for recruitment companies. This is because the finance provider will typically take on the risk of non-payment from the client. This can free up the recruitment company to focus on their core business activities, such as finding and placing candidates.
• Improved credit rating. Using invoice finance can help to improve a recruitment company’s credit rating. This is because it shows that the company is able to manage its finances effectively and has access to reliable sources of funding. This can make it easier for the company to obtain loans or other forms of finance in the future.

Permanent Recruitment

Another key issue is that invoices are issued to clients once candidates are placed successfully. This long payment cycle can result in a 30-, 60- or 90-day wait for payment. Clients who fail to pay on time or at all can quickly undermine a profitable business, limiting the availability of capital to meet payment deadlines for temp and perm placements, and other operating expenses as well as restricting the ability of the recruiter to grow the business and take it to the next level.

Temporary Recruitment

There can also be cash flow problems created by the nature of the work. Agencies that hire temporary staff members and contractors will need to pay these workers, along with their usual operational expenses. However, the end customer may not pay the recruiter for 30, 60 or even 90 days, which creates an unavoidable cash-flow shortfall for agencies of every size.    

Benefits of Recruitment Finance

In contrast, invoice finance (factoring and invoice discounting) is fast and flexible, raising finance against unpaid client invoices that can be used to pay the wage bill on time. A factor or factoring company can advance funds tied up in an unpaid client invoice within 24 hours of it being issued, unlocking funds early and effectively transferring the payment delay on to the provider. Let’s look at how recruitment finance works.

How does Invoice Factoring Work for Recruitment Agencies?

Recruitment agency factoring is more suited to s firms that have lower invoice values and limited access to bank funding. It can fill the cash flow hole by advancing up to 95% of the value of the outstanding invoice once it has been issued to the client. Once the candidate is successfully placed and the invoice is issued to the client, the factor provides the balance of the invoice, minus fees.

As part of the factoring agreement, the factor or factoring company manages credit control and payroll administration (processing timesheet information) on behalf of the business. In this way, freeing up resources in small recruitment firms. As a result, clients are aware that a factoring facility is in place.

Recruitment invoice discounting targeted at larger, established recruitment agencies that have their robust finance procedures in place as credit control and the collections process remain in-house. Therefore, clients remain unaware of the provider’s involvement. Both factoring and invoice discounting can give recruitment agencies the quick cash flow fix they need to pay temp and perm placements as well as cover other operating expenses without having to wait for clients to pay.

How can Recruitment Finance help?

Factoring and invoice discounting for recruitment and staffing agencies is a way of bridging this cash-flow gap. Rather than waiting for a client to pay for the recruitment services they have received, a third party finance provider (known as an invoice factor) will pay up to 95 percent of the invoice within 24 hours of it being issued.

This means the recruitment agency will receive an immediate influx of cash, allowing it to pay the temporary worker and cover other operating expenses, without having to wait for the invoice to be paid.  

We can Help You Find the Best Recruitment Finance Companies

If you would like to remove the funding and administration burdens from your recruitment business, simply fill in the short form above and an FCA regulated finance broker will be in touch. You can ask advice, understand your options, and get a range of tailored quotes without any obligation.