How To Secure An Invoice Finance Arrangement For A New Recruitment Agency

Recruitment agencies using invoice finance to fund contract and temporary placements is normal practice within the industry now and ensures that the agency can pay the candidates before the client makes payment.  The myth, however, is that new start up recruitment agencies believe that they would not be able to secure their own invoice finance arrangement as they have no previous trading history and as a result they will often turn to pay-and-bill solutions, look to get investors or funding elsewhere to support the cash-flow.  The reality is that banks and invoice finance companies are eager to fund contract/temporary placements for recruitment agencies as every invoice has the equivalent of a contract attached to it in the form of a signed timesheet, so there is a higher probability it will be paid.  Even new start up agencies can get an invoice finance arrangement as the companies providing the facility will base their decision on the industry the placements are being made into and the credit worthiness of the clients.

Below is a checklist of what you need to ensure you have to present to the invoice finance company in order to secure as a new start up recruitment agency your first invoice finance arrangement:-

  • 12 MONTH PROJECTIONS AND CASH-FLOW

Creating and presenting some realistic 12 month projections of your recruitment agency is a vital part of getting invoice finance quotations as they form the basis of the service fees and discount (interest) charges.  These need to be as realistic as possible to ensure that you do not get caught out on excessive minimums if they are too high, or overcharged on the service charges if they are too low.  The projections should also show how your business is planning on growing from a standing start to an established contractor book over a 12 month period.  We have enclosed 2 examples of 12 month projections and cash-flow for you to see (one contract and one temporary).

12 Month P&L & Cashflow Example (Contract)

12 Month P&L & Cashflow Example (Temporary)

  • LIST OF 10 POTENTIAL CLIENTS YOU ARE HOPING TO MAKE PLACEMENTS INTO

The next vital piece of information the invoice finance company need is a list of the potential clients you are hoping to make placements with. This list gives the invoice finance company an idea of the size of your clients (i.e. large multi-nationals or small consultancy businesses) and where they are based (as not all invoice finance companies can fund placements outside of the UK).  The invoice finance companies will often run a credit check on these clients to ensure they can provide the funding and credit insurance where necessary.  You will also need to divulge at this stage if any of your clients are RPO’s or if there is a potential of Pay-When-Paid clauses as these can often cause headaches for the invoice finance companies.

  • UNDERSTANDING AND EXPERIENCE OF YOUR MARKET

Demonstrating your understanding and experience of the market you are recruiting into gives the invoice finance company lots of comfort that the facility they provide is in safe hands.  Providing a CV/LinkedIn profile showing your previous working history at other recruitment agencies should be enough to demonstrate this.

  • SECURE HOW YOUR INVOICING, BACK OFFICE AND ACCOUNTS WILL BE COMPLETED

All invoice finance arrangements provide funding based on the value of the invoices being raised and so it is important that these are raised correctly and uploaded to meet the required drawdown deadlines.  Showing the invoice finance company that you can raise the invoices, make the payments to the contractors correctly and reconcile your accounts gives the finance company the comfort that their funds are going to be used correctly.  If you can also show that your back office can handle credit control and produce monthly management accounts you may also be able to get an invoice discounting facility instead of a factoring arrangement, which is significantly cheaper.

  • DISCLOSING ANY ADVERSE CREDIT HISTORY

One thing to be totally honest with the invoice finance company is your personal credit history.  If you have any adverse personal credit, CCJ’s or previously dissolved companies it is ideal for you to lay it on the table from the start.  Invoice finance companies need to complete their own credit checks on all directors and if they find a skeleton in the closet without you telling them it can have a detrimental effect on whether they can provide the finance as they wonder what else you may be hiding!

  • GET AT LEAST 3 QUOTES FROM DIFFERENT INVOICE FINANCE COMPANIES

Getting numerous quotes from different providers is vital to ensure you are getting a good deal on your invoice finance. Make sure that they all quote in the same way and if one quote has something shown that the others do not, then question why it has been charged.  Do not pay any invoice finance provider to secure a quotation as this is not required and once the companies know you are shopping around they may sharpen their pencils to give you a better deal.

Over the years, TBOS has helped set up over 40 invoice finance arrangements for our clients, with over 90% of these being for new start up recruitment agencies.  TBOS works with over 8 different invoice finance providers to get a range of quotes which meet the needs of the agency’s funding requirements during their first few years.  By using a range of providers that understand TBOS’s involvement in the back office and accounting process, it means that the pricing is often preferential and can be set up in a fraction of the time.  TBOS also manages the day-to-day running of the facilities that have been set up to ensure that the agency can concentrate on recruiting, whilst enjoying the reduced fees with TBOS managing the invoicing, credit control and reconciliation side of the business.

If you would like more information on how TBOS can help you secure invoice finance for your new start up recruitment agency, please contact our office.