Recruitment agencies placing temporary or contract candidates often face a common funding challenge: workers need to be paid before the client pays the agency.
To meet this requirement, agencies can either use their own funds, which carries risk, use a pay-and-bill solution, or secure funding from banks or specialist funding companies in the form of invoice finance.
Pay-and-bill solutions have been developed to provide a back-to-back funding facility for recruitment agencies. These solutions typically include raising invoices to clients, funding payments to candidates (via limited, umbrella, or PAYE models), and distributing profits minus a percentage fee based on the value of the client invoice.
There are many pay-and-bill providers operating within the recruitment market, each offering its own version of this solution. They can be particularly beneficial for new start-up recruitment agencies that need immediate funding and administrative support for their first temporary placements.
Below are some of the key time and financial advantages and disadvantages that pay-and-bill providers can offer recruitment agencies:
TIME ADVANTAGE
Pay-and-bill solutions are already established and can often be set up within a matter of hours. As recruitment can move extremely quickly, having fast access to funding to pay contractors and manage the administrative elements of a placement can be invaluable for agencies without existing infrastructure.
In addition, pay-and-bill providers handle administrative tasks such as invoicing, candidate payments and payroll, credit control, and profit distribution. This can save agencies significant time each week or month, allowing consultants to focus on what they do best: making placements.
TIME DISADVANTAGE
Depending on a provider’s internal processes, the collation and submission of timesheets can be time-consuming on a weekly or monthly basis. This can become a distraction, particularly if clients do not align with the processes imposed by the provider.
Some pay-and-bill providers also tie agencies into long-term agreements with onerous termination clauses, which can restrict flexibility when an agency wishes to exit the facility. In some cases, providers may withhold profits during the notice period, sometimes for up to three months, even if the client has already paid funded invoices. This can severely impact an agency that is trying to move to a more suitable solution.
MONEY ADVANTAGE
Pay-and-bill solutions are generally most effective for temporary recruitment, as fees are typically based on the total invoice value raised rather than the number of invoices issued. This means agencies only pay fees in proportion to the value of the work billed, even if the number of workers or hours fluctuates week to week.
If a temporary candidate works only a small number of hours, resulting in a low invoice value, the agency is not penalised by a fixed per-invoice fee. Additionally, because pay-and-bill companies advance profits before the client makes payment, this can significantly support agency cashflow, particularly for start-ups or businesses that rely on early profitability to cover staff costs and overheads
MONEY DISADVANTAGE
For agencies placing high-value contractors on day rates, pay-and-bill fees can be considerably more expensive than managing administration and funding independently. If an agency has seven to eight contract placements, or an annual projected turnover above £750,000, it is often worth exploring the use of an outsourced back-office function combined with a bank or funding company providing invoice finance.
Furthermore, once an agency builds sufficient cash flow and no longer requires pre-paid profits, continuing with a pay-and-bill solution can result in paying higher fees for funding that is no longer needed. In contrast, invoice finance arrangements typically charge interest only on funds actually borrowed.
There remains a clear need for pay-and-bill solutions within the recruitment industry, particularly for agencies supplying temporary workers or launching their first contract recruitment business.
MAYACHI Ltd works with a wide range of pay-and-bill providers across the industry to ensure recruitment agencies secure the most appropriate and cost-effective funding solutions. MAYACHI can also analyse an agency’s existing funding arrangements to assess whether a current pay-and-bill solution remains time- and cost-effective when compared with an outsourced back-office function supported by a separate invoice finance facility.