10 Pros and Cons for Using a Pay-And-Bill Provider to Fund Your Placements
When placing a candidate on a temporary or contract position, a consideration always needs to be made on how to pay the candidate before receiving the money from the client. There are many different methods of funding temporary/contract placements which all have their own advantages and disadvantages. Methods include self-funding, outside investment, using an invoice finance company or a Pay-And-Bill provider. Pay-And-Bill companies offer their services to raise the client invoices and fund paying the candidates and profit at a percentage of the turnover. There are many different Pay-And-Bill companies on the market all offering their services in various forms. Below is a list of some pros and cons one should consider when looking at using a Pay-And-Bill provider:-
1. COMPANIES CAN PROVIDE FUNDING FOR PLACEMENTS VERY QUICKLY
Pay-And-Bill facilities are very quick to setup as they are already being used by many other agencies and the invoicing and funding process is the same for all agencies. The companies will have to complete their own risk and credit assessments and arrange paperwork but the process can be finalised quicker than getting a full invoice finance arrangement in place.
2. FEES CAN BE CHEAP FOR TEMPORARY PLACEMENTS
The fees for Pay-And-Bill facilities work very well for temporary placements by covering the cost of funding and the administration cost of raising the invoices and paying the temps. As the fees are based on a percentage of the turnover these can be very cost effective in relation to the work needed to get the invoice raised and the contractor paid. To fund paying a weekly paid temp on £6.50 per hour on a 15%GP can cost around £26 per week (based on a 6% fee).
3. FEES CAN BE EXPENSIVE FOR CONTRACT PLACEMENTS
Whereas the fee structure works well for temporary placements it can often work the opposite for high level contract placements compared to having your own invoice finance arrangements. As the process is the same for contract and temporary placements the cost of raising one high value invoice and securing funding on it can take large amount of the profit generated. To fund paying a weekly paid contractor on £300 per day on a 15%GP can cost around £85 per week (based on a 4% fee).
4. SERVICE CAN HAVE HIDDEN CHARGES
When signing up for any Pay-And-Bill facilities it is advisable to ask for a list of disbursements as there can be additional fees for various extra services. Providing copies of statements and reports, completing credit checks, paying contractors early or outside of terms can have additional charges which can soon build up. Some facilities will also have monthly minimum service charges like a full invoice finance facility.
5. FACILITY PROVIDES 100% FUNDING OF PLACEMENTS
Pay-And-Bill facilities not only provide the funding to your contractors on a weekly basis but also pay out the profit element minus the charges before the client makes payment.
6. HAVE TO TAKE SALES TIME TO UPLOAD CANDIDATE TIMESHEETS
Although the Pay-And-Bill company will provide the facility to raise invoices and fund paying the contractors, the agency will still need to manage the inflow of timesheets and notifying the Pay-And-Bill company of the hours worked. The more contractors working will mean more time having to be spent to meet the Pay-And-Bill company’s deadlines to ensure the contractors are paid. An Agency may need to take on an additional administrator to manage this part of the process which means the full cost of administering the placements increases significantly.
7. LACK OF CONTACT CAN LOSE THE AGENCY’S IDENTITY
As all the administration and funding processes are being handled by the Pay-And-Bill company this can mean that the clients and candidates are contacted by a different company to the agency. As the Pay-And-Bill company may not have the same intentions or values as the agency they are working for could in effect upset the relationships built.
8. MISS OUT ON HOLDING VAT AND PAYE IN THE AGENCY BANK ACCOUNT
One of the ways that Pay-And-Bill companies ensure they are not always providing full funding on placements is by holding back the VAT and PAYE on the placements until this is due to HMRC. Pay-And-Bill companies will often hold any VAT in their own account which if the agency had their own invoice finance facility would be in the agency account instead and could aid cash flow.
9. HAVE TO WORK TO THE FACILITIES TIMESCALES AND PAYMENT STRUCTURES
Pay-And-Bill companies have set systems and processes that are the same for all agencies and include having set deadlines for uploading timesheets in order for candidates to get paid by that Friday. This however means that the Agency has to get all timesheets in on time each week and cannot pay the contractors on the terms they want.
10. AGENCY NEEDS TO MANAGE THE REMAINDER OF THE ADMIN , BACK OFFICE AND ACCOUNTS FOR THEIR COMPANY
Pay-And-Bill companies only provide the services in order for the client to be invoiced and the candidate paid but all other required services such as contracts, managing the bank account, bookkeeping and year end statutory work still needs to be completed. Therefore an agency still needs to pay internal staff or an external accountant to cover these services which all adds to the overheads for the agency.
At Total Back Office Solutions Ltd we do not provide a conventional Pay-And-Bill service as part of our solution as we help agencies to manage their cash flow using their own funds and if necessary we help set up and manage their own invoice finance arrangements. Our solution is catered towards agencies providing contract workers instead of temporary workers and resolves all of the cons shown within this article.
Our Fund My Contractor solution is another alternative to the traditional Pay-And-Bill service and has helped many agencies bridge the funding gap on their contract placements. Due to the pricing structure and the fact that profits are only distributed once the client pays, this method is ideal for high level contract positions. It also shows agencies how invoice finance works without signing up for a full invoice finance facility from day one.
For more information on how Total Back Office Solutions Ltd and Fund My Contractor can help fund your agency or to compare our costings against your current Pay-And-Bill provider please do not hesitate to contact us.