Monday 29th Oct 2018
How to manage your cash flow in the recruitment industry
16 Feb 2016
The recruitment industry adds a staggering £28.7billion into the UK economy on average every year, with 91% of this figure coming from the placement of temporary or contract workers. However, from extensive research carried out by Hitachi Capital Invoice Finance it was found that 38% of recruiters cite cash flow as the biggest challenge faced in their day to day activities.
So why is this such an issue for temporary recruitment agencies? Well, let’s think about the average funding cycle for a recruitment agency. On day 1 they’ll place a temporary employee at a company. The employee will complete a week’s work and then provide their timesheet. An invoice is raised for the employer to pay for their services, however this may take the employing company anything from 30 days to pay. This means that the recruitment agency may not have sufficient funds to pay their temporary employee on time.
This issue can be exacerbated if the employer is a late payer, if probation periods are in place for the temporary employees and also if you place candidates into a sector that is affected by seasonality. It’s also worth remembering that running a temporary recruitment agency is not just about ensuring the employees get paid – you also need to cover your own overheads.
So, what can be done to address this? Accurate forecasting and business planning is obviously key, but there are also a number of finance options available to you.
A business loan provides you with a set amount of money that will need to be re-paid over a set period of time for a set interest rate. These are a traditional method of funding but lack flexibility.
An overdraft is another option, and they can be perfect for covering unforeseen eventualities. However, this is also an unsustainable and potentially expensive way to fund your business.
One of the most popular options available to temporary recruitment agencies is invoice finance. This works perfectly to cover the funding gap that exists as businesses can release the value in their unpaid invoices within 24 hours of them being raised. It also provides credit control support and the amount available to you grows as you grow.
Our Inspired Payroll product is designed specifically for recruitment agencies and provides an invoice factoring facility as well as a comprehensive back office support system.