Thinking Of Moving From Pay-and-Bill To Invoice Finance?

When an agency starts making contract/temporary placements, they may consider using a Pay-And-Bill provider to administer and fund their candidate payments.  However, as the contractor book grows, the Pay-And-Bill provider’s services may become very expensive and cumbersome compared to using an invoice finance provider.  If you decide to move across to your own invoice finance arrangement, it is important to understand that there are some changes that will need to be made. It is important to understand the difference between the two solutions and ensure that your agency is prepared to reduce any impact on your clients and candidates.

Below are some of the differences that an agency needs to consider when moving from a Pay-And-Bill provider to Invoice Finance:-

  • Significant Cost Savings
    Pay-And-Bill companies will charge their fees based on a percentage of the gross invoice value and will include the back-office process as well as the costs to fund the invoices. However, this cost is not a true comparison of the costs of running the back-office processes internally, coupled with using an invoice finance provider where the costs will be much lower if your temp/contract turnover exceeds £750k+.  Also, as the invoice finance company will charge you based on a low service charge and interest on the funds borrowed, you are in greater control of the costs incurred.
  • Additional Funds Held in Company Account
    Some Pay-And-Bill providers work by holding back the candidate holiday pay, VAT and PAYE elements of your temporary/contract placements which would usually be held in the company bank account instead. As invoice finance companies also provide funding between 85-90% of the gross invoice value, this means you have the option of drawing down the holiday pay, VAT and PAYE if required, along with an element of profit if it is greater than the prepayment.  These funds can either be held in your company bank account or held at the invoice finance company in order to reduce interest charges.
  • Require Back Office Support
    The downside of moving from a Pay-And-Bill provider to an invoice finance company is that you will need an element of back office support as the Pay-And-Bill provider will raise your invoices, process the payments to your contractors (PAYE payroll or payments to umbrella/limited companies) and look after the credit control. However, most Pay-And-Bill providers will expect you already to complete an element of the back office processes such as chasing and uploading timesheets, monitoring portals or helping with credit control.  This can be managed by taking on internal administrators or you can use an outsourced  back office service, and they can manage this at a cheaper rate than the percentage charged by a Pay-And-Bill company.
  • Will Not Receive Profits Each Week
    The main difference between using a Pay-And-Bill company and invoice finance is that the Pay-And-Bill provider will send you the profit on the placement based on the timesheet received, instead of when the client makes payment. This is similar to the way that profits are realised on permanent invoicing and can take some time to get used to if you have been used to using a Pay-And-Bill providers service.  However, if you can start to retain a balance in your company bank account and/or the Pay-And-Bill provider is already holding VAT, PAYE and holiday pay funds, then you may as well consider moving as your cash-flow should be able to support this transition process.
  • Better Control Over Debtor Book
    Some Pay-And-Bill providers will raise the invoices to your clients but not give any indication as to what amounts are due from your clients until you ask or the debt goes over the contracted terms. This may mean you are continuing to place contractors into a client who is not making payment or increasing your financial risk with the Pay-And-Bill provider.  By taking control of your back-office processes and invoice finance arrangements, you will have a better idea of which invoices are due for payment, if any are overdue or if any will fall outside of funding constraints (i.e. 90-120 days) as part of the processes and reporting.
  • Improve Company Name With Clients
    Often Pay-And-Bill providers will not hide their involvement in the back office and funding process by using online systems, chasing clients and putting their company details on the invoices in their company name. This can dilute the agencies identity and can compromise the client/agency relationship if the processes anger or upset the clients.  By running the back-office processes internally or using a reputable outsourced back-office provider and arranging an invoice discount facility, you will be able to keep all services under your own company and branding.

TBOS manages the full back office and accounting services of many new start-up recruitment agencies, including helping to arrange and manage invoice finance arrangements.  As TBOS has relationships with numerous invoice finance providers, we can help set up invoice discounting facilities for new start up and existing recruitment agencies at preferential rates and look after the day-to-day arrangements.  TBOS also has experience of moving agencies from Pay-And-Bill providers to their own invoice finance arrangements so the agency enjoys the cost savings whilst minimising the impact on the client and candidates by making the transfer as smooth as possible.

For more information on how TBOS can review your current contractor finance arrangements to see if they are suitable for your agency, please contact our office.