7 Problems With Pay-and-Bill Solutions
There are many different ways that agencies can get funding for their contract and temporary placements that can be sourced from many different providers. In our experience, the most widely used solutions are: Agencies using their own cash flow; taking out bank loans or borrowing from investors; signing up to factoring or invoice discounting facilities provided by banks and invoice finance companies and some will engage the services of pay-and-bill providers. Pay-and-bill providers will offer administration services such as invoicing and payroll, as well as funding the candidates wages and paying the profit element to the agency (minus their fees). Many agencies use this solution to manage their temporary and contract placements, but over the years TBOS has found flaws in this type of model for the agency.
Below are some problems TBOS has found on speaking to agencies using pay-and-bill solutions:-
- NOT REALLY PROVIDING 100% FUNDING
One of the main sales points of a pay-and-bill solution is that they provide the funding on the contractor payments due, as well as paying the profit element minus the funding fee. However, pay-and-bill companies will withhold any VAT or PAYE elements due by the agency which means they are not always providing 100% funding. Using a traditional invoice finance company would give finance on the whole invoice value and allow the agency to hold any VAT or PAYE in their own bank account.
2. SALES TIME WASTED ON UPLOADING TIMESHEET DATA
In order for pay-and-bill companies to raise the invoices and pay the candidates on time, the agency is responsible for providing the timesheet data on a weekly basis. This will often involve the agency collating the timesheets and providing candidate information to the pay-and-bill company, either through bespoke reports or online portals. However the larger the temp/contractor base grows, the more time the agency wastes each week on unnecessary administration which can cut into important sales time. Using a back office provider such as TBOS means that all timesheets are collated outside of the agency, meaning the consultants can concentrate on recruiting.
3. FACILITY CAN OVER PAY TO ENSURE CONTRACTORS ARE PAID
Pay-and-bill providers are obligated to continue funding contractor payments each week under their agreements which means if any debts become bad or unpaid, the pay-and-bill provider will continue to pay the contractors (often the profit payments will cease during this time). However, whilst the payments are still made to the contractors, the debts of the agency still continue to grow. TBOS has found in some cases that the funding provided will exceed the amount of overdue debt, which can mean the agency is borrowing more than it should and is trading insolvently.
4. DO NOT PROVIDE ACCOUNTING SERVICES
Pay-and-bill solutions will only provide the client invoicing, funding of candidate payments, limited credit control and profit distribution as part of their offering which means the agency still needs to engage an accountant to look after management accounts, VAT returns and year end accounting. Often, agencies will feel that paying for a pay-and-bill provider is a large enough cost and not consider using an accountant to produce management accounts and who can often check how the solution may not be working correctly for the agency.
5. EXCESS CHARGES ON PAYING CONTRACTORS OUTSIDE OF TERMS
One of the main restrictions of the pay-and-bill process is that the agency have to adhere to the strict processing timescales to ensure that the candidates are paid each week. Often, this means that all contractors must be paid weekly on a Friday through submitting their data by an early week deadline. However, if a candidate cannot get their timesheet authorised on time but the agency still wishes to pay the candidate on time, the pay-and-bill company will impose some hefty charges in order to do this. If the agency had their own funding facility and back office team, there would not be this kind of extra fee imposed and the agency could dictate their own timesheet deadlines and payment terms.
6. PAYMENT TERMS RESTRICTIONS
Some pay-and-bill providers will only allow agencies to engage with clients who have 30 day payment terms and will not allow agencies to work with clients with longer terms. This can restrict which clients an agency can work with, especially with some clients using RPO providers who may have either longer payment terms or pay-when-paid clauses. Invoice finance providers do not have such restrictions on their funding facilities and are able to fund between 90-120 days before restricting funds. Some invoice finance providers can also provide funding on pay-when-paid contracts, which can be helpful when dealing with larger client projects.
7. ARE NOT AS CHEAP AS THEY ORIGINALLY APPEAR
Pay-and-bill providers will often charge for their facilities on a percentage of turnover basis and this can vary depending on the amount of weekly invoicing or the annual turnover. For low paid workers or low contract turnover businesses, this can be a very cost effective way of paying for funding services. However, TBOS has recently found that if the agency has grown to a larger turnover or a moderate level of contractor numbers on a weekly basis, it appears that the pricing of the pay-and-bill provider in addition to the external accountant costs makes this solution much more expensive than the TBOS Complete model. In two scenarios over the past week, we have produced quotations making savings of £8k and £18k per annum in comparison with their existing solution on agencies with sub £1m turnover.
Over the years, TBOS has quoted on many agencies using pay-and-bill providers to offer a comparative price on our service. In most cases, TBOS has provided a quotation which is not only cheaper but provides a more comprehensive solution to the agency that also includes full accountancy services. Agencies that have moved to TBOS are enjoying having a healthier cash flow, more control over their contractor payments and a better understanding of their management figures.