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If you run a modern recruitment agency, the chances are that you spend far more time managing your payroll and chasing up on payments that you might like. Even if it doesn’t help to know that you’re not alone, recruitment finance might just change your outlook for the better.

Here we take a deep dive into the world of recruitment finance, explaining what it is, how it works, and the ways that it could help your recruitment business to thrive.

What is recruitment finance?

Recruitment finance is effectively a form of invoice financing designed especially for the recruitment industry. It sees a finance company paying you upfront for the invoices you raise, taking on responsibility for taking payment for your clients, and all for just a small fee.

With an estimated 40,000 recruitment agencies in the UK, it makes sense that some might struggle with their cashflow. This can not only leave the agency struggling to deal with its own costs and commitments, but also means recruitment professionals end up spending valuable time chasing up payments and worrying about money. Recruitment companies often run payroll for contractors and temporary staff on a weekly basis, but bill their clients monthly. Delays like this can lead to trouble, particularly where payroll costs are mounting up and funds just aren’t coming in.

Recruitment finance strips those worries away by allowing agencies to access money for their payroll costs upfront by trading the sum against their outstanding invoices, meaning that they can keep on working even if their client’s payments aren’t quite so regular as clockwork.

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How does recruitment finance work?

Recruitment finance works by advancing funds for payroll and credit control to recruitment agencies before they would otherwise receive payment from their clients. When you’re owed money by a client, you can swap this outstanding invoice with a finance company for money upfront. You’ll get what you’re owed and boost your cash flow, whilst they will take on responsibility for collecting the receivables from your clients. It usually works via a pay and bill system, which means that once the agency has submitted timesheet information for their payroll (including temporary and permanent placements), the finance company can release the funds.

This is effectively invoice finance for recruitment companies, as it removes tension from the business’s cash flow or by providing a reliable and timely route to completing payroll without having to worry about whether not clients have settled their invoices.

Is recruitment finance the same as invoice factoring?

Recruitment finance is, in many ways, the same as invoice factoring for more conventional businesses. It’s a specialist funding solution that allows recruitment businesses to exchange their unpaid invoices for cash, which can then be used as working capital for payroll and the business’s general operating costs.

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What are the benefits of recruitment finance?

Factoring for recruitment companies is designed to be a flexible finance solution, and it comes with many benefits attached. These include:

Better cash flow, helping recruitment firms to pay staff, temporary workers and contractors on time, every time. With recruitment companies often taking on a significant payroll burden, waiting for clients to pay what they owe can put serious strain on the whole system. By using recruitment finance to settle outstanding payroll, recruitment businesses can benefit from an altogether more efficient system.

It saves on time and money, because when one your business’s biggest sources of administrative work is handled by a finance company, you may not need to engage with external credit controllers or even hire in-house clerks to chase selective invoices. This means that recruitment professionals can dedicate their time and energy into finding new clients, sourcing candidates, and helping their business to grow.

Flexibility, as your business can now afford to wait for invoices to be paid. You won’t have to spend time chasing your clients as you’ll be safe in the knowledge that your outgoing payments are covered by the recruitment financing agreement. You can get the money you need, when you need it and without having to chase down clients and jeopardise business relationships.

Am I eligible for recruitment factoring?

The eligibility criteria for recruitment factoring vary widely between the specialist lenders that offer this form of finance, but it is designed to be a flexible solution and so you may well qualify. You’re more likely to be approved if you can demonstrate the ability to meet the agreed repayment terms, have shown creditworthiness in the past, and have a good number of clients whose repayments will give you the capital needed to settle what you owe.

If you think that recruitment financing could be of benefit to your firm, find out more and compare the best specialist providers around using our invoice finance comparison tool. With flexible asset-based finance, you could improve the cash flow of your recruitment company, and see it succeed and grow.