Invoice finance is a staple within the recruitment industry especially if the agency is making contract or temporary placements as there is a requirement to pay the candidates before the client makes payment. Recruitment agencies are ideal clients for invoice finance companies as the invoices raised are often more secure than a business dealing with stock, plant or machinery. Invoices relating to temporary or contract placements are seen as a very low risk of not being paid as they are backed up by approved timesheets so the invoice finance company can provide lend a larger pre-payment amount (80-90% of the invoice value). Some recruitment agencies may also use invoice finance for funding their permanent placements to add additional cash-flow but this is often provided at a lower pre-payment percentage due to rebates.
However, invoice finance facilities can appear quite confusing and need some daily management to ensure that they work correctly. We have provided a simple run-down of how they work:-
Raise the Invoices to The Client
The invoices that you raise to your clients are the security for the invoice finance company to provide funds and as such you need to ensure that these are correct and have followed correct processes in order to get paid. The invoices need to be checked that they are for the correct values, have the appropriate required information and show the invoice finance companies bank details (and/or assignment notice). If the invoices are for contract placements then you will also need to ensure you have approved timesheets attached as proof that the candidate has worked the time shown.
Upload the Invoices to The Online System to Provide Available Funds
Invoice finance companies will have an online portal for you to upload your invoices to so they can calculate your availability based on the agreed pre-payment percentage. If you have a factoring facility then you will need to upload each invoice individually so the invoice finance company has a record of each invoice as they will be chasing the client for the funds due. If you have an invoice discount facility then you will need to upload the total amount of the invoices raised and hold internal accounting records to show how this is broken down. The invoice amounts uploaded will be incurring an agreed service charge based on the full invoice value notified. Once uploaded the online portal will provide a balance of the funds that have become available to be drawn down following the upload.
Drawdown the Required Availability to The Bank Account
When the funds are available at the invoice finance company you will be expected to request a drawdown of available funds that you require to your agency bank account. Invoice finance companies have different deadlines in order to ensure that the funds are released and payments can be made on a BACS or same day drawdown. Any funds borrowed from the invoices finance company will be incurring an agreed interest charge based on a daily interest rate.
Client Makes Payment to the Invoice Finance Company Releasing the Remaining Availability
As the invoices raised are owned by the invoice finance company the clients will be paying the invoices to their company bank accounts. Once the client has made payment for the invoice this repays the funds lent to your agency and the additional funds not previously lent are available for the next drawdown. As the funds are repaid the interest charge is therefore reduced as there are less funds being borrowed.
Over the years TBOS has helped many new start up and existing recruitment agencies in setting up and managing the daily running of their invoice finance arrangements. TBOS works with a number of different invoice finance providers to ensure that the agency always has the best value facility to provide their funding. Due to TBOS’s relationship with these different providers and the fact that the service provided by TBOS reduces the invoice finance companies risk (as TBOS does not raise “fresh-air” invoices, all processes are the same for all agencies and all credit control is handled internally) they can provide facilities at a lower bespoke rate.
For more information on how TBOS can help set up and manage your invoice finance arrangement please contact our office