Cash flow gaps can stunt the growth of your business. If you issue invoices on net terms of 30 days or more, you have to manage the gap between raising an invoice and receiving payment.
This is an issue for firms in many sectors. But businesses in the recruitment industry experience cash flow gaps more frequently than most. A recruitment firm needs to pay its contractors on time, and this usually falls way before the client’s invoice is due.
Recruiters often turn to invoice financing to bridge cash flow gaps and keep their businesses growing.
In this guide, we’ll explore what recruitment Invoice Finance is and how it can help you grow your business.
Why Do Recruitment Companies Need Invoice Finance?
A recruitment business typically needs to wait around 45 days after raising an invoice to receive payment from a client. But they need to pay their contractors every week. This gap between cash inflows and cash outflows can significantly strain working capital.
You cant take on new clients or place new candidates if you don’t have the capital to cover payroll. While suppliers in other industries often provide net terms, you cant negotiate 30+ day payment terms with a candidate.
Recruitment companies often work with large firms that require flexible access to labour. But unfortunately, these large companies usually take the longest to pay their invoices.
That’s one of the reasons the government launched the Payment Times Reporting Scheme. The scheme requires large enterprises to report their small business payment terms so suppliers can make informed decisions on whom to work with.
But no recruitment business wants to turn down the opportunity to work on a lucrative contract with a big client due to cash flow gaps and extended payment terms.
That’s why recruitment Invoice Finance is so popular. It helps recruitment firms better manage their cash flow and take on new contracts with the confidence of knowing when they will be able to access funds.
How Does Recruitment Invoice Finance Work?
Invoice Finance for recruitment businesses works by releasing the funds tied up in your outstanding invoices. It cuts the time between raising an invoice and getting paid.
When you submit an invoice for financing, you can access up to 85% of the invoice value as an upfront cash advance. This provides the capital you need to pay candidates and take on new contracts.
Once your client pays the invoice, you receive the remaining balance of the invoice, less fees.
This type of financing is sometimes referred to as payroll funding.
There are two main types of recruitment Invoice Finance: invoice factoring and discounting.
With Invoice Factoring, also known as Debt Factoring, you essentially sell the outstanding invoice to the financing company. You pass the responsibility for collecting invoice payments to the finance company, and they communicate directly with your client to arrange payment.
Invoice Discounting works similarly to factoring, but your company maintains responsibility for collecting invoice payments. The funding arrangement is usually confidential.
Because of the additional collections services, lenders typically charge more for invoice factoring. If you want to learn more about the costs involved in funding an invoice, read our guide on the costs of invoice financing.
Benefits of Invoice Finance for Recruiters
Most businesses could benefit from getting paid upfront within 24 hours of raising an invoice. But it’s even more beneficial for a recruitment company. Here are the top benefits of Invoice Finance for recruiters.
Strengthens Relationships With Clients
A successful recruitment agency is built on strong, ongoing relationships with clients. It costs 5x more to acquire a new customer than retain an existing one.
With Invoice Finance, you can offer extended payment terms to your customers and not worry about how it will impact cash flow. You can outsource collections to your financing partner or keep things in-house and confidential with an Invoice Discounting facility.
Supports Working Capital
You can access funds as and when you need to. The most significant expense for recruitment firms is payroll. When you need working capital to cover wages, you can submit an invoice for financing and receive a cash advance in as little as 24 hours.
Invoice Finance is a flexible type of funding that can be tailored to your cash flow needs. For example, you can choose a come and go facility or a line of credit secured against your accounts receivables.
With Selective Invoice Finance, you can choose which invoices you want to finance.
Avoid Long-Term Debt
Recruitment Invoice Finance releases capital from within your business. Instead of taking on long-term debt, you can use your outstanding sales invoices as collateral to access funds. There’s no need for residential property security and no regular monthly repayments.
Invoice Finance is also much more accessible than traditional bank funding. So if you’re a new business or don’t have a perfect credit rating, you may still be able to secure an Invoice Finance facility.
Using Recruitment Invoice Finance to Grow Your Business
Invoice Finance provides predictable and stable access to working capital. It’s an effective cash flow solution for growing labour-hire businesses. As you take on new clients and place more candidates, your access to credit increases.
An Invoice Finance facility keeps up with your cash flow needs and is much more flexible than a traditional business loan or overdraft. Instead of continually renegotiating your credit limits, funding increases in line with your sales revenue.
There are lots of ways Invoice Finance can be a catalyst for growth and support recruitment businesses.
Fund New Investment
It costs money to attract new clients and bring new candidates on board. You need to pay for marketing, wages, and other expenses before your new clients pay and you see a return.
If capital is tied up in outstanding invoices, you cant reinvest in your business. Invoice Finance speeds up growth by providing fast funding. You can overcome cash flow gaps and finance new investments.
Take on Bigger Clients
Working with larger companies can take your recruitment business to the next level. But enterprise clients often have the longest payment terms.
Invoice Finance enables you to raise funds using your accounts receivables as collateral. As a result, you can get the financial backing to bid for new contracts with larger clients. As you close new contracts and submit new invoices, you can access more funding to bid on more enterprise contracts.
Reduce Admin Time
Chasing payments can drain time resources that you should dedicate to more dollar-productive tasks. Instead of focusing on growth, you spend your time chasing unpaid invoices.
According to the latest Payment Times Report by the Australian Small Business and Family Enterprise Ombudsman, more than 50% of businesses need to ask two times or more for payment.
Source – ASBFEO Payment Times Report 2019
This is a big issue for time-poor recruitment agencies.
With Invoice Factoring, you can outsource account management, credit control, and collections to the finance provider. A professional team can handle collections while you focus on winning new contracts.
If you want to see how Invoice Finance can impact growth, read our Allstaff Australia case study. We helped the national recruiter grow from $10 million annual turnover to more than $90 million over 10 years.
How To Get Started With ScotPac Recruitment Invoice Finance
ScotPac Invoice Finance can help you access up to 85% of your outstanding invoice value within 24 hours of billing your client. You can bridge the gap between making a placement and being able to access your profits. It provides you with the capital you need to grow.
To get started with invoice financing, you’ll need to supply some basic information about your business and the invoices you want to fund. You can learn more about the documents you need and how to apply by calling us on the number below.
If you’d like us to call you, use our simple online enquiry form, and one of our friendly business finance advisers will be in touch.