When an agency starts making contract or temporary placements they will have to decide early on how they will administer and fund these placements. Many recruiters will search ‘Pay-And-Bill’ companies on Google to facilitate raising their invoices on their behalf, these companies will also pay their contractors and distribute the profits the same week with charges based on a percentage of their invoice value.
Although some of these Pay and Bill companies provide a valuable service they can become restrictive and quite expensive for the agency as it grows. This is when the agency should look at acquiring their own invoice finance arrangement.
Below is a list of 5 things that agencies should prepare before switching to their own invoice finance arrangement:
1. FUNDS TO COVER ADVANCED PROFITS
Most Pay and Bill providers will provide the agency with the profits based on each timesheet that arrives. With an invoice finance company, they will lend the full profit once the client has made payment. There are two options that are recommended for covering funds during the transition. The first is the agency notifying the Pay and Bill provider to hold off paying profits for 4-6 weeks prior to the transfer. The second, the agency ensures they have a business bank account with the funds available during the transition. As the invoice finance provider will give between 85-90% of invoiced value this should be enough to pay the contractor and draw down some (not all) profits in advance.
2. BACK-OFFICE TEAM TO PROCESS TIMESHEETS, RAISE INVOICES AND PAY CONTRACTORS
As Pay and Bill companies normally cover processing timesheets, raising invoices and paying the contractors on the agency’s behalf, the agency should look at a solution to facilitate this extra administration work. The agency could decide to do this internally but will have to consider the extra costs of hiring staff, office space, computers, furniture, software in order to run these processes. The other alternative is to engage with a back-office company who can take care of all the recruitment administration.
3. NOTIFYING CLIENTS TO THE CHANGE OF BANK DETAILS
When using a Pay and Bill provider, your clients will be used to paying to their company bank account. You will need to notify each client to let them know about the change of details to avoid them making payments to the wrong account. Payments that are made to the wrong account can cause delays in clearing debts and can take time to move between the two providers.
4. ENSURE AGENCY BANK ACCOUNT CAN COPE WITH CONTRACTOR PAYMENTS
Pay and Bill companies will make payments to the contractors and temps via their own bank account, it’s recommended that the agency checks with their bank that their business bank If needed, the agency may need to increase any payment limits and research the charges for making these transfers.
5. UNDERSTANDING COMPANY FUNDS MAY INCLUDE VAT, PAYE AND HOLIDAY PAY
As part of their service, some Pay and Bill companies will hold back the VAT, PAYE and holiday pay on behalf of the agency until it is due to the HMRC or the contractor. As the agency is not used to having these funds in their own bank account it can be complicated for agencies to understand what funds they can spend and what funds are owed to the HMRC. It is recommended that the agency receive monthly management accounts to ensure they understand what types of funds are in their account, be it profits or money payable to the HMRC.
HOW TBOS CAN HELP
As TBOS celebrates its 10th birthday this year, we look back on the many agencies we have helped on their journey to becoming a success. One of the big factors is ensuring an agency succeeds in this industry is its steady cash-flow. Using a Pay and Bill company can cut into an agency’s capital which is why it is highly recommended for agencies to switch to their own invoice finance arrangement in order to sustain its growth. At TBOS we are specialists in the smooth transition of Pay and Bill company to your own invoice finance arrangement.
The agencies who have made the move to TBOS have benefitted from significant savings on their back-office, funding and accounting costs. Our long-standing position in the recruitment sector, enables us to negotiate the best invoice finance rates for our clients, we even go a step further and negotiate new rates with invoice finance suppliers if there is an opportunity for our clients to make placements overseas. Once a fee has been agreed by the agency, our team will then ensure the invoice finance arrangement is set up correctly and then manage it on a daily basis, moving forward.
For a free no-obligation comparison quote between your current Pay and Bill company and our TBOS services then please contact our office on 0345 504 6333 alternatively, you can email firstname.lastname@example.org