Invoice finance is required by most recruitment agencies that are making contract or temporary placements and provides the funding to pay the contractors before the client makes payment.
One of the questions that recruitment directors often ask us is how the funding arrangement works as it can seem like a very complicated process.
At MAYACHI we try and ensure that we simplify the process and make it easy for anyone to understand how it works and the advantages of using invoice finance for their recruitment agency.
MAYACHI sees the process as follows:
CREDIT CHECK THE CLIENT
It is crucial for the agency to perform a credit check on any new client (if the client is in the public sector, then no credit check is required). If the agency is using the credit protection provided by the invoice finance provider, then they will complete the credit check on their system. If the agency is using external credit insurance, then the credit check will be completed using their system. This credit rating will often dictate the amount of funding the invoice finance company can provide against the client’s invoices.
RAISE THE INVOICE TO THE CLIENT BASED ON AN APPROVED TIMESHEET
If there is a sufficient credit and funding limit in place on the client, the candidate will work and submit their approved timesheet to the accounts department. This timesheet will then be raised into a client invoice, sent to the client for payment and uploaded to the bookkeeping software.
UPLOAD THE INVOICE TO THE INVOICE FINANCE PROVIDER
Once the client invoice has been raised and uploaded to the bookkeeping software, the agency needs to upload the invoice/s to the invoice finance provider. Each provider has their own unique way of uploading the invoice detail so that they are notified of the amounts raised. Some providers have a direct link to certain bookkeeping software and others will require a more manual process of providing the detail on the invoices raised.
DRAWDOWN THE FUNDS TO THE AGENCY BANK ACCOUNT
Once the invoice finance provider has acknowledged the receipt of the upload, they will provide an updated available balance that can be borrowed which will often be 80-90% of the invoice value (dependent on the agreed prepayment). The agency can then decide on the amount that they wish to borrow from the invoice finance provider and a drawdown request will be made to the agency bank account.
PAY THE CANDIDATE
Once the funds have arrived from the invoice finance provider then the agency can make payment to the candidate from the agency bank account in advance of the client making payment. If the agency has decided to draw down the full amount available then there may also be funds available to pay suppliers, staff, or dividends.
CHASE THE CLIENT FOR FUNDS TO BE PAID TO THE INVOICE FINANCE BANK ACCOUNT
The next stage is the client must pay the invoice to the invoice finance bank account and the credit control will either be done by the invoice finance provider (often on Factoring facilities) or by the agency’s accounts department (if they have a CHOCS or Invoice Discount facility) until payment is made.
ONCE THE CLIENT MAKES PAYMENT, DRAWDOWN THE REMAINING FUNDS
When the client payment clears the invoice finance bank account, the funder will update the availability balance to allow the agency to drawdown the remaining funds on the invoice i.e. if the prepayment is at 90% then the remaining 10% of the invoice value will be available once the client makes payment.
The invoice finance process works like a revolving bank overdraft where the funds become available every time invoices are uploaded and are repaid every time the client makes payment.
MAYACHI has many years of experience helping to arrange and set up invoice finance arrangements for recruitment agencies of various sizes and industries. As part of the process, MAYACHI will ensure that the Directors have a full understanding of how invoice finance works and ensure that the facility runs smoothly and provides the maximum funds in use.
