Friday 4th Sep 2020
Recruitment invoice finance is a type of funding solution that’s designed to help businesses that struggle with cash flow. It’s an alternative to things like loans and overdrafts, and is of particular interest to recruiting firms. In this article, we’ll take a quick look at some of the most important points regarding this potentially useful product, and who can benefit from recruitment finance.
Why do recruitment businesses face cash flow problems?
Recruitment businesses naturally work on an invoice basis, and they have to carry out a large amount of work before they’re able to raise these invoices. This means that there can often be a challenge in balancing money between payroll and the settling of invoices. This challenge is all part of cash flow. Without ready access to cash, recruitment companies can struggle to meet their monthly commitments. They can also find it difficult to grow, which might hamper their ability to do things like win larger contracts.
Late payments of invoices can really compound this - although we’d all like invoices to be paid on time, this simply doesn’t happen in all cases. That’s where invoice finance comes in.
How does invoice finance work?
Invoice finance might not be as well-known as things like loans and overdrafts, but thankfully that doesn’t mean that it’s complicated. With invoice finance, you set up a facility with your lender, which turns into an ongoing funding stream. You’d place candidates in roles and raise invoices as normal, and then once you’ve done that, you send a copy to your finance provider, who will transfer around 80% of the value of the invoice right away. You then get the remainder, less fees such as interest, once the invoice has been settled.
It’s always important to consider these fees when deciding whether or not invoice finance is right for your business, and consulting an independent advisor is never a bad idea. It’s all about weighing up the costs versus the benefits of having cash in the bank.
Is recruitment invoice finance a specific product?
Invoice finance is not limited to recruitment businesses. In fact, businesses of all types will employ it. It’s designed to help in any industry whereby cash flow issues are frequent, and that they’re often the result of late or unpaid invoices. However, as it’s common for recruitment firms to have this issue, the name ‘recruitment invoice finance’ has stuck. It’s worth being aware that there are also several different types of invoice finance, with factoring and discounting being the most well-known. The major difference between the two is that discounting is confidential, where factoring usually means allowing the invoice finance provider to look after credit control too.