Invoice Finance is often a key requirement for recruitment agencies making contract/temporary placements as it provides the funds to pay the candidates before the clients make payment. Although the facility can appear straightforward, understanding the jargon around the charges and how they are calculated can sometimes be alien to a recruitment director. When I meet with potential clients, this is one their biggest pain points. So let’s have a look at invoice finance costs explained.
These are the charges that invoice finance companies will charge an agency on a facility: –
SERVICE CHARGES
Service charges are the fees charged by the invoice finance company for providing the funding facility. These charges are often based on a percentage of the invoices raised and uploaded to the invoice finance company or can be a fixed monthly fee (often for larger recruitment agencies with high turnover).
CREDIT PROTECTION/BAD DEBT PROTECTION
If an agency has opted for the invoice finance company to provide credit protection or bad debt protection on the invoices being raised, then this will often be charged as a percentage of the invoices raised and uploaded. This charge can be a separate fee or can be rolled into the service charge percentage.
DISCOUNT/INTEREST RATES
Discount/Interest rates are charged against a base rate (normally Bank of England Base Rate) and are charged on a daily interest rate based on the funds that have been borrowed from the invoice finance provider. This means the more funds that are borrowed from the invoice finance company or the longer the clients take to repay the debts, the more interest will be charged.
MINIMUM FEES
For the invoice finance company to ensure that the agency meets the projected turnover, there may be a monthly/quarterly/annual minimum fee against the service charges the agency needs to commit to. If the agency does not upload enough invoicing to generate enough service charges to meet the minimum fees, then the invoice finance company can top up the fees to meet this requirement.
SET-UP FEES
Setting up a new arrangement can involve lots of paperwork before the facility goes live such as audits, credit committees, registering of debentures, etc. and the invoice finance company may charge a set-up fee to cover these costs.
RENEWAL FEES
Some providers will impose a renewal fee which is often charged at the 12-month stage in the facility based on a percentage of the funding limit. At this point, the invoice finance provider should review the effectiveness of the facility to ensure it is providing the correct level of funding and that the fees are correct based on the levels of invoicing and turnover.
OTHER DISBURSEMENTS
There are a range of additional fees charged by providers which should be disclosed before to the facility goes live. This includes trust account fees, drawdown charges, audit fees, etc. and will be charged should the disbursement occur.
INVOICE FINANCE COSTS EXPLAINED
All the above charges are standard within an invoice finance arrangement and should be fully disclosed and explained before a facility goes live, but understanding all the ins and outs can be a minefield if you’re not familiar with the process.
MAYACHI Ltd has many years of experience helping to source and set up invoice finance arrangements for recruitment agencies. As part of the set-up process, we will explain to the agency the fees they will be charged and monitor these as the facility is used. We also have long-term relationships with a range of invoice finance providers so we can source the right facility at the best possible price.
Book a free 2-hour consultation call with Stewart and we can break down some of the barriers you’re facing when it comes to understanding your recruitment agency’s numbers. Don’t forget to connect with us on LinkedIn, too!
