Why should a temp recruitment agency use factoring?

Posted: 14th May 2015

Most business entrepreneurs are not accountants or administrators; the vast majority are sales people, and this is particularly true in recruitment. As the cost of setting up in business are so low, it is easy for a good consultant to think “I would rather earn my fees for myself rather than my boss”. 

New business is the main focus for these fledgling businessmen and if you mention Finance and Cashflow they will invariably go glassy eyed and look to change the subject.

However if you point out that most businesses fail, not through lack of sales, but from poor financial management and lack of cashflow, then they should begin to listen. 

The worst thing that can happen to a temp agency is that it cannot afford to pay its workers.  The repercussions of this will probably damage the business beyond repair.

But the fundamental issue is that workers have to be paid monthly or weekly and unfortunately customers can often delay paying their invoices for weeks or even month.  Online payment portals should make life easier, but if anything they can confuse and complicate matters and where once you could talk to a person to deal with a query, now it might be a computer.  

The other issue is that if a customer fails your workers will still expect to get paid.  A significant bad debt can mean the end of the line for a growing recruitment business. 

How does recruitment factoring help?

There are three ways factoring helps temp recruitment agencies:

  1. As soon as the agency raises an invoice, a factoring company can advance 90% of its value.  That generates enough cash to pay the temp worker immediately.  It means that you they can take on new business without having to worry about funding it.
  2. The Invoice Factoring Company will take care of credit control and customer payments.  You don’t have to worry about chasing unpaid invoices.  You don’t have to spend hours arguing with an invoice payment portal.
  3. The Invoice Factoring company can arrange protection from bad debts meaning that if a customer does fail you will still get paid.

Factoring is widely used in the industry as it exactly matches a growing recruitment agency’s cashflow.  There is no ongoing negotiation, the facility grows in line with sales growth.  It really is the ideal finance solution for a temp recruitment agency.

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