Invoice finance is the most common way of funding contract and temporary placements for recruitment agencies. Invoice finance companies like working with recruitment agencies as the funds are lend against timesheet-based work which is almost guaranteed to be paid so the risk to the funder is minimal.
However, invoice finance is often a new term for new recruitment directors and there are some apprehensions as to how the facility will work and whether this could be of a detriment to their business.
Below are some of the concerns raised by recruitment directors when they are approached about invoice finance:
INVOICE FINANCE WILL DECREASE THE VALUE OF MY RECRUITMENT AGENCY
Invoice finance is a great way for an agency to use cheap funding instead of using company funds to pay contractors or temporary workers. If an agency uses its own funds this could reduce the growth possibilities of the business due to lack of investment in staffing and technology, therefore reducing the company value. If an agency is funding contractors themselves then they may not have credit protection against their debtors which could create a liability which could reduce the agency’s value.
THE INVOICE FINANCE COMPANY WILL SECURE THEIR FUNDING AGAINST MY HOUSE
When an invoice finance provider sets up a facility, they will often take an all-asset debenture and a personal guarantee. It is often misunderstood that the invoice finance company will guarantee these against the director’s personal assets such as a house. This is incorrect as the all-asset debenture guarantees that the invoice finance company own the debtor book (which they are funding against) and the personal guarantee is a contract between the funder and the director/shareholders that they will repay any funds that cannot be collected should the agency fail.
YOU CANNOT GET INVOICE FINANCE IF YOU ARE A NEW START-UP AGENCY
Most new start-up recruitment agencies will not delve straight into invoice finance as they do not believe a provider will be willing to fund their company and may use a more expensive pay-and-bill solution instead. If a new start-up recruitment agency can prove contracted clients and a projected contract turnover of between £500-750k in the first year, then an invoice finance company would be willing to provide a facility to a fledgling business.
I HAVE BAD CREDIT SO I CANNOT GET INVOICE FINANCE
Whilst having a good credit history helps secure an invoice finance arrangement, having a bad credit history does not mean that funding cannot be provided. If there is only one (sometimes two) blemish on file that can be explained to the invoice finance company, then there may be concessions that can be given to provide the required funding. Often the strength of the business and the clients they will be billing will have a bigger factor in credit’s decision instead of the directors’ credit history, so it is worthwhile having the conversation with the funder.
MAYACHI Ltd has helped hundreds of recruitment agencies set-up invoice finance arrangements for over 20+ years and has heard many concerns from agency directors about arranging such finance for their business. In all cases, MAYACHI has appeased the directors’ fears and ensured that the funding arrangements meet the recruitment agencies needs to provide the required cashflow for their business.
