When a recruitment agency places a temporary or contract worker, the worker typically expects to be paid within seven days of submitting their timesheet, regardless of whether it is submitted weekly or monthly. However, many clients operate on 30–60-day payment terms, creating a funding gap that agencies must bridge.
This cashflow gap can be covered either through internal funds or, more commonly, by using invoice finance (also known as factoring or invoice discounting). Invoice finance offers several significant advantages to recruitment agencies. Below are three key benefits:
PRESERVING COMPANY FUNDS
Managing monthly cash flow is already challenging for recruitment agencies, especially when funding temporary or contract placements. Delayed payments from clients can strain internal resources, making it harder to invest in business growth, such as hiring new staff, implementing new technology, or ensuring directors receive the remuneration they deserve.
Invoice finance allows agencies to access funds quickly, reducing reliance on internal reserves and smoothing out cash flow fluctuations.
COST OF FUNDING IS CHEAPER THAN YOU THINK
Invoice finance is often more cost-effective than many business owners expect. Thanks to strong competition among providers and a decreasing Bank of England base rate, invoice finance facilities have become one of the most competitively priced funding options available to recruitment agencies.
These facilities are typically linked to the agency’s invoicing volume, meaning the available funding scales as the business grows. Additionally, if an agency becomes cash-rich, fees can decrease since interest is only charged on the actual funds drawn.
ADDITIONAL BAD DEBT PROTECTION
A key benefit of invoice finance is the ability to include Bad Debt Protection (credit insurance). This protection ensures that if a client goes into administration or liquidation, the insurer will cover the amount advanced by the invoice finance provider.
Agencies funding placements from their own reserves without such protection are exposed to significant risk, particularly if a client fails to pay. Losing the funds already paid out to workers can severely impact business stability.
Invoice finance should be a serious consideration for any recruitment agency placing contract or temporary workers. It reduces financial risk and ensures healthier, more predictable cash flow.
MAYACHI has worked with numerous recruitment agencies to assess and implement the most suitable funding solutions. We offer expert advice and can introduce you to a network of trusted banks and invoice finance providers, ensuring you receive the best terms tailored to your business needs.
