Funding for a recruitment agency making contract and/or temporary placements is vital as the candidates will need to be paid often before the client makes payment on the invoices raised. If the finance arrangement has been set up correctly, there should be no issues with the prepayment being provided to cover the candidate payments until the client makes payment.

However, funders have certain stipulations within their contract terms which can affect whether they can fund some or all the invoices uploaded, and it is important to understand what they are and how to avoid them from affecting the cash-flow. Below are some examples:


Should an agency be making contract/temporary placements in the private sector, the finance company will often insist on the clients having a sufficient credit insured limit to cover the debt should a client go bust. This limit is based on the credit rating of the client and will be applied for by the agency. If the amount of outstanding invoicing for a client exceeds the credit limit, then the finance provider may restrict funds until the debts are reduced, or an increase limit is requested and given.


Much like a client credit limit, a finance provider may be able to provide a funding limit which is higher than the credit limit. This funding limit will allow the agency to borrow funds above the credit limit but will be at the agency’s own risk should anything happen to the client. However, the funding limit is not unlimited and if the amount of outstanding invoicing goes above this then the finance company can restrict funds.


When setting up an invoice finance facility, the provider will propose an overall limit that they can provide funds to the agency based on the next 12 months projections. If the agency reaches this facility funding limit, then this will prompt the provider to do a review of the facility to see why. If the limit has been reached due to an increase in placements, then the provider should be able to get this limit approved. However, if the limit has been reached as no funds have been received or the level of debt has become bad then the provider may struggle to increase the limit. In both circumstances, the provider may restrict funding until the facility limit has been increased.


Finance providers will often be concerned if an agency has put “all their eggs in one basket”. This means that an agency is doing all or most of its deals with one client and there are few or no other clients to fall back on should a client stop making placements or go bust. To protect themselves they may put a concentration percentage on the agreements where one client cannot be above that percentage of the overall debtor book. If the invoicing for that client does exceed the concentration limit, then the provider may restrict funding until the client makes payment or the other debtors increase.


Much like a client concentration limit, a finance provider may also be nervous if the amount of overseas debt becomes dominant on the ledger. The provider may insist on putting in an export debt concentration limit which would restrict funding if the overall percentage of international debt goes above the set threshold.


Finance providers will often cover the funding of invoices for between 90-120 days or until they are paid.  If an invoice remains unpaid for longer than the agreed period, then these invoices will become unfunded by the provider and assigned back to the recruitment agency (with the agency owing the funds borrowed on these invoices). The only way to get the funds on these invoices after this time is for the client to make payment where the agency would then receive 100% of the funds due.

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