Invoice finance is essential for any recruitment agency placing contract or temporary workers, as it provides the funding needed to pay contractors before clients settle their invoices.
Once these facilities are set up, they can often run smoothly and consistently provide the required funding with minimal administrative oversight, provided they are managed correctly.
However, these arrangements must be reviewed periodically to ensure they continue to meet the agency’s funding needs and remain competitive in an ever-changing market.
Below are some key reasons why you should regularly review your invoice finance facilities:
INCREASE IN TURNOVER
Fees for an invoice finance facility are typically based on the projected turnover at the time the arrangement is agreed, often when the business is smaller. If turnover exceeds those projections, it may be time to reassess the service fees and interest charges to determine if they can be adjusted in line with the new figures.
FACTORING TO INVOICE DISCOUNT
Some agencies begin with a factoring facility, where the finance provider handles additional administration such as reconciliation and, in some cases, credit control. These added services increase the service charge. As an agency grows and its back-office function strengthens, it may be able to bring these processes in-house. Doing so can allow a switch to an invoice discounting facility, reducing service fees.
ANNUAL REVIEW
Every invoice finance provider conducts an annual internal review of its facilities. Good providers will engage with clients to confirm whether the facility still meets their needs. Others, however, may simply charge a renewal fee to “roll the facility over” without discussion. Directors should diarise the annual review date for every facility to ensure charges are assessed, and any reductions are negotiated before the next year’s extension is applied.
CREDIT RATING ISSUES
Even when funding is provided, discrepancies may still exist between what is funded and what is credit-protected. This can result in overtrading with a client who, while fundable, does not have an adequate credit limit and leaving the agency exposed. If the bad-debt protection limits offered by the provider are insufficient, it may be worth exploring whether an external credit insurance policy would offer better coverage.
FUNDING RESTRICTIONS
Most invoice finance facilities offer full prepayment, but minor breaches of facility terms can lead to funding restrictions. These issues are often resolvable by reviewing the cause of the restriction and renegotiating key terms such as concentration limits, debtor days, or prepayment levels.
CHANGES IN PROVIDER CREDIT POLICY
Banks and finance companies regularly reassess their lending policies in response to market conditions. Since many invoice finance companies are bank-backed, the same changes can affect them.
If a provider decides to reduce exposure in certain sectors, regions, or facility sizes, they may become more difficult to work with, sometimes without warning.
Such policy shifts often apply only to that provider. Comparing the market may reveal more suitable alternatives that continue to offer full funding.
MAYACHI has helped numerous recruitment agencies establish and maintain their invoice finance facilities. As part of our process, we continually review these arrangements to ensure they remain aligned with each agency’s needs. We can also introduce agencies to a range of banks and invoice finance companies to ensure competitiveness, and, where required, assist in sourcing external credit protection.