Recruitment agency funding can undoubtedly be a complex subject. A few options may be available, but are they all suitable or easily accessible for startups or SMEs in the temporary recruitment sector? Your route to borrowing to keep a temporary recruitment business industry riding the peaks and troughs can see you feel your only option is to turn to invoice factoring.
However, with the help of specialist companies, that is changing. When it comes to recruitment finance and back-office support for startup and SME temporary recruitment agencies; such companies provide funding solutions and vital back office support packages so you can concentrate on the essentials of keeping clients and employees happy while they ensure you have the required capital and cash flow to pay wage bills on time.
Knowing your options will help you choose the most cost-effective funding available when you need it. This solution relieves you of the rigours and pitfalls of invoice factoring, which we explain below.
Pitfalls of invoice factoring
You may be fully aware of invoice factoring, the practice of raising money by selling a percentage of your outstanding unpaid invoices to a third party. However, you face not only the wait to find out if your invoices are eligible for factoring, but you are also at the mercy of an often hefty factoring equation. You may only have access to as little as 70% of the invoice value and only see a further small portion on successful collection by your chosen invoice factoring agent. Not all the money you are owed is your own and depending on your business credentials can undoubtedly cost you dearly.
Debtors will also clearly see you have accessed invoice factoring as the factoring company will be collecting and chasing outstanding payments on your behalf. Strict criteria to borrow against unpaid invoices are set and you may be subject to minimum fees. You will also face an all assets debenture against your business, which factoring companies will invoke should they have to. It can be a costly and risky method of finance if your debtors fail on your agreed factoring values. It is also a pretty expensive solution requiring a debt insurance policy and hefty late payment fees.
Recruitment specialised cashflow solutions, so you don’t have to turn to invoice factoring
An alternative risk-free solution undoubtedly makes sense, so consider partnering with a finance partner specialising in the recruitment sector. It will help you avoid many potential issues with traditional invoice factoring for temporary recruitment agency businesses. Just like factoring, there are many different package solutions available. Still, unlike factoring, these solutions are recruitment sector experts who support you in running and growing your business as a priority.
Recruitment sector startups and SMEs face unique cash flow challenges, especially when it comes to smoothing over the difference between income and expenditure or when it comes to paying staff each week or funds are needed for building costs. yet, a young business will not have access to lending streams available to more established or larger companies so readily.
A specialist recruitment finance partner will not only offer you genuine 100% invoice funding irrespective of your business volumes or client numbers, but they can also provide industry-specific back-office functions to ensure you maximise your cash flow through consistent good business practice. A specialised recruitment funding solution will not require personal guarantees, debentures, minimum fees, or vast setup costs.
Having 100% guaranteed invoice funding without turning to an invoice factoring company is certainly worth investigating. A dedicated, specialist recruitment sector funding support partner has a vested interest in ensuring you succeed for them to thrive.
Sophie Turton
