Recruitment agencies that are looking to get into the contract/temporary recruitment market will have to consider the need for invoice finance to finance the candidate’s payments until the client makes payments for the invoices. Although most invoice finance companies are eager to provide funding to recruitment agencies as the invoices raised will have signed timesheets attached they still have to assess the risk before providing the funds. Here are some reasons that agencies may not get the invoice finance facility they require:-
- TURNOVER NOT LARGE ENOUGH – Invoice finance companies will base their fees on your projected turnover for the coming year. However, they also have a minimum fee threshold when providing an invoice finance facility. Therefore if the turnover is low this can mean that the service fee can seem extremely expensive. Alternatively some invoice finance companies will not provide quotes to companies where the projected turnover is lower than a certain annual threshold i.e. £300k.
- BAD CREDIT HISTORY – As part of their due diligence, invoice finance companies will look into the credit worthiness of the directors and shareholders of the agency to ensure that there are no current or previous credit issues. These can include failed directorships, company liquidations, CCJ’s and credit defaults which can have an effect on whether the invoice finance company will provide the funding you require.
- ONLY ONE CLIENT – Invoice finance companies want to ensure that you spread your risk by ensuring you have a range of clients you are making placements to. If you only have one main client which makes up a large concentration of your debtor book then this will make the invoice finance company nervous in case the client goes bust or ends the contract.
- ALL INTERNATIONAL PLACEMENTS – Some invoice finance companies can provide funding on international and currency placements. However if all of your placements are overseas with no UK clients then the concentration of international debtors will make the invoice finance company concerned about the risk to the funds they lend.
- NO BACK OFFICE PROCESSES – When you set up an invoice finance arrangement you need to demonstrate to the invoice finance company that your back office team are able to raise the invoices correctly and provide accurate accounts reporting to prove that the funds being provided are being used in the correct way.
- NO ASSETS – Some invoice finance companies will require a list of any assets and liabilities currently held by the directors to support the personal guarantee that needs to be signed. This is to ensure that if anything happens to the company then the invoice finance company are protected and some will insist that the director’s assets exceed the guarantee given.
Fund My Contractor can overcome many of these reasons shown as our service is based on the credit worthiness of the clients not the history of the agency or the directors. The facility is a great incubator for agencies who are starting out in the contract market and once the agency gets to the desired amount of turnover to warrant having their own invoice finance arrangement we can help to facilitate the transition.