Invoice finance is a staple in the recruitment industry, especially for agencies placing contract or temporary staff in the UK or overseas.
That said, many recruitment directors don’t fully understand the benefits of these facilities. It’s common to question whether to use company funds, take out a loan or overdraft, or even bring in an external investor instead of using invoice finance.
Here’s why invoice finance is often the best option for a recruitment agency, and exactly what you’re getting for your money:
FUNDING TO PAY THE CONTRACTORS
The main reason agencies use invoice finance is simple: it gives you the cash flow to pay your contractors or temporary workers before your clients settle their invoices. This is essential when placing temp or contract candidates, as workers typically need to be paid within 7 days, while clients might be on 30–60-day terms. An invoice finance company will usually advance around 80–90% of the invoice value upfront, so your agency can pay staff on time, and in some cases, even access some of the profit early.
BAD DEBT PROTECTION
Another huge benefit of invoice finance is credit protection. If your client goes bust, you’re protected and you won’t need to repay the funds already advanced, as long as the client passed a credit check and had an approved credit limit. If you were using your own company funds instead, you might forget to secure this kind of insurance and could be left exposed if a client went into administration or liquidation.
FINANCE THAT GROWS WITH YOUR BUSINESS
One of the best parts about invoice finance is that it can be scaled as your business grows. The funding available grows in line with your invoicing, so as your turnover increases, so can your facility. That flexibility beats a fixed business loan or overdraft, where you would need to renegotiate or apply for extra funding if you outgrow your limit. While the finance company might run an internal audit before increasing your facility, if your growth is genuine and your clients have solid credit histories, there’s usually no problem getting approval.
CREDIT BASED ON INVOICING, NOT PERSONAL ASSETS
Unlike traditional finance options, invoice finance is based on the creditworthiness of your clients, not your company or directors personally. This makes it a great option for start-up recruitment agencies. As long as you have a contract in place with a creditworthy client, you can often secure your own facility from day one. The provider will still take an all-assets debenture against the company and personal guarantees from directors, but these are only there as protection in the case of company failure or fraud, and they won’t affect your personal credit rating day to day.
For recruitment agencies that are looking to grow, an invoice finance facility is almost always the smarter move. It gives you control over cash flow, protects you against risk, and scales with your success.
At MAYACHI, we’ve helped countless recruitment agencies set up tailored invoice finance facilities that suit their business needs. We also work closely with a range of banks and finance providers to make sure each agency gets the right fit.
If you’re thinking about setting up invoice finance or want to review your current setup, get in touch, and we’ll help you find the best solution for your business.
