Updated on 13th May 2024

Ensuring reliable cash flow is critical for businesses across industries. But for certain industries in which there is an inherent delay between services rendered or products provided and invoices being settled, managing access to working capital is even more critical.

Large gaps in cash flow can strangle a company’s ability to grow, operate and take advantage of changing market conditions.

More and more recruitment companies are turning to Invoice Finance as a solution for their cash flow needs. By bridging the gaps in cash flow through this simplified, streamlined finance solution, your recruitment agency can spend more time doing what it does best: Connecting talented people with great career opportunities.

What Causes Gaps in Cash Flow?

The average market payment terms for settling outstanding invoices is 30 days, yet recruitment businesses typically need to wait 45 days on average for clients to settle payment.

Contractors, operating expenditure and other business costs, however, need to be paid more diligently and punctually than that. This creates a difficult gap between the cash flowing out of the business and the money coming in–causing a significant strain on working capital.

Without working capital, aside from meeting daily operational expenses, recruitment agencies may struggle to take on new clients, place new candidates or expand their recruitment agents roster.

But there’s another element to this as well. Recruitment companies, generally, tend to work with larger businesses who have significant labour needs and require more flexible access to the employment market. These lucrative partnerships are essential for many recruitment companies’ growth.

However, with larger companies often come longer payment terms. This can cause even further pressure on a recruitment agency’s ability to access the working capital they need to not just thrive but survive. 

This is where Invoice Finance comes in. It’s a financial solution that allows recruitment companies to operate and grow with the confidence of knowing that they will be able to access the funds they need when they need it.

How Recruitment Invoice Finance Works

Invoice Finance is a short-term funding option for businesses to smooth over the gaps in cash flow. It works by using unpaid invoices owed to a business as collateral for an advance in cash. Instead of having the value of those outstanding invoices tied up and inaccessible, businesses can access the funds owed to them tomorrow, today!

There are two main types of invoice financing: factoring and discounting.

1. Invoice Factoring

With Invoice Factoring, a company ‘sells’ its invoice or invoices to the financing company at a discount.

It is then the responsibility of that finance company to collect accounts receivable from the client or clients. The remaining balance is then remitted to the recruitment company for whom the Invoice Finance was arranged–minus the service fee.

2. Invoice Discounting

On the other hand, with Invoice Discounting, the working capital provided by the finance company is borrowed against the value of the outstanding invoice or invoices. 

The recruitment company itself remains responsible for collecting payment and thus repaying the loan, so to speak, to the finance company.

The Benefits of Invoice Financing for Recruitment Agencies

If you’re a recruitment company and find yourself struggling to maintain cash flow, Invoice Finance offers a number of benefits.

1. Improved Cash Flow

Quick access to customisable amounts of cash will allow you to meet the needs and demands of your business and ensure nothing holds you back from continued growth and success–including delayed payments from clients!

2. Increased Profitability

With improved cash flow and greater control over the money coming in and out of your business, you can focus on boosting profitability. Utilising the money owed to you when you need and how you need it puts you back into the finance driver’s seat of your business.

3. Enhanced Client Service

Invoice Finance doesn’t just offer financial benefits. This solution means you’re able to maintain the extended payment terms your clients will appreciate without sacrificing your own cash flow. This improved relationship will enhance your reputation in the market and encourage continued and increased business.

4. More Customisability

Invoice Finance is inherently customisable and thus scalable. By choosing the invoice or invoices that you use as collateral you can determine how much cash you need an advance for and maintain complete control. As your business scales and your accounts receivable scale accordingly, your use and access to Invoice Finance can grow in tandem.

5. No Debt

Invoice Finance allows your business to avoid taking on long-term debt. By utilising the outstanding sales invoices on your books, there’s no need to put up property as security or to take on the risks associated with traditional loans.

6. Reduce Admin Time

Did you know that 50% of small businesses have to follow up more than once with clients to receive payment? With the right Invoice Finance solution, you can reduce admin time, avoid the hassle of debt collection and focus on actually taking your business to the next level.

Is Invoice Financing Right for Your Recruitment Agency?

If you’re a recruitment agency and are struggling with gaps in your cash flow or just want to explore how this solution could help you realise your longer term business goals, have an obligation and pressure-free chat with a member of the ScotPac team today.

Our lending specialists understand the unique challenges faced by business, especially in the recruitment sector. That’s why we’re able to customise recruitment Invoice Finance specifically to suit the needs of our clients.

  • Access up to 95% of your outstanding invoices
  • Get the working capital you need in as little as 24 hours

Contact us today to learn more by filling in our online enquiry form and a lending specialist from our team will be in touch as soon as possible.