Are there signs you might not be getting what you need from your current invoice factoring company?
The importance of choosing the best recruitment invoice finance company (also known as an invoice factor) who can provide you with the opportunity to maximise your growth is immense. Getting your recruitment financing right can give you back invaluable time and save you the headache of admin, meaning you can spend your time doing what you do best and growing your agency.
First of all, what is invoice finance and why is it beneficial?
If you’ve never accessed invoice finance before, then it may be beneficial to first understand exactly what it is and how it could benefit you. Invoice finance for recruitment is a financial solution that allows recruitment agencies to access the cash that’s usually tied up in unpaid invoices. Recruitment agencies often face delays between placing a candidate and receiving payment from clients, which can sometimes cause cash flow issues. Invoice finance addresses this by enabling agencies to receive a significant portion of the invoice value upfront from the finance provider, instead of waiting the usual 30-90 days for clients to pay.
There are two main types of invoice finance: factoring and invoice discounting.
- In factoring, the finance provider takes over the management of the sales ledger and the collection of payments from the agency’s clients. This can be hugely advantageous for smaller agencies with limited administration resources and cash reserves.
- In invoice discounting, the finance provider also advances funds against outstanding invoices, but the recruitment agency has to manage their own sales ledger and client invoices without assistance from the finance provider.
For recruitment agencies, especially those with high staffing costs, contractor funding offers a way to maintain steady cash flow, meet payroll needs, and invest in growth opportunities without relying on traditional loans. It’s particularly useful in industry sectors with typically long payment terms or where large clients might delay payments.
How to find the best recruitment invoice finance companies for SMEs
For any recruitment agency aiming for growth, the selection of the right recruitment funding partner is an essential factor. It often happens that agencies can be caught out with nasty surprises, even when the invoice finance provider seems like a good fit at the start – and this can happen to both well-established agencies and start-ups alike.
These ‘surprises’ can come in the form of deals that end up costing you more than initially expected or through penalties for over-trading or concentration levels, or other restrictive terms and conditions that hamper the way you want to work.
A great invoice finance deal from a reputable provider should provide you with the vital bridge in cash flow between paying your contractors and for key operational costs, and waiting for client invoices to be settled. This gives you the financial freedom to build your future on your own terms.
Taking the time to thoroughly research the market and find the right deal is of the utmost importance, as it can save you time, money, and energy in the long run, allowing you to focus on growing your business.
Changing invoice finance providers
If you’re already with a finance provider, change can often seem difficult and time-consuming. In this situation, it’s really important to partner with someone who can offer you a thorough audit and support you with your client communication. In the long run, a change can be the best decision you ever make, depending on who you chose to partner with.
Whether you’re new to recruitment invoice financing, actively weighing your options, or your current deal is causing you sleepless nights; there are a few essential elements you need to take into consideration to make sure you are getting the best possible deal for your needs.
To help ensure you make the most informed decisions, we’ve compiled the following information that highlights what you should be looking out for, and how to tell whether you’re getting a good deal or not.
Red flags to look out for in a recruitment invoice financing provider
Unhappiness with your current financial provider can be caused by various underlying issues. The following is a list of some of the common reasons we find that people consider making a change. If any of these concerns sound familiar, then it may be time to re-examine your options:
1 - Poor customer service
One of the biggest causes of unhappiness for many recruiters with their finance partners is their customer service ecosystem. Factors such as different account managers, slow reaction time, communication difficulties, and unhelpfulness in times of need are the most common concerns regarding providers with poor customer service. When time is of the essence, having to chase different people, and then having to constantly repeat yourself can create considerable stress and waste time.
A recruitment invoice finance provider with poor customer service ethics can seriously disrupt an agency's operations. Poor communication and confusion over invoice statuses can cause delays in processing invoices or releasing funds, and if contractors are not paid correctly or on time, you risk your agency's reputation and the retention of the contractors on your books. This can also lead to recruiters' margin payments being withheld or delayed, disrupting cash flow and further hindering the agency’s ability to meet financial obligations.
Additionally, hidden fees or unclear terms can lead to unexpected costs, further squeezing the agency’s margins and affecting overall profitability.
2 - Slow credit checks
The ability to quickly negotiate contracts and get candidates working is key to any successful recruitment agency. To ensure all deals are securely confirmed, contracts need to be negotiated with proper credit checks in place. In this regard, any delays in the credit check turnaround can become a major problem.
Quick and accurate credit checks can help you manage risk around non-payment. Recruitment agencies can also leverage credit checks to strategically drive agency growth.
Click here to find out more about how credit checks can help you grow your agency.
3 - Penalties for overtrading
Some finance solutions include rules around overtrading that can result in agencies receiving financial penalties. A credit limit will be determined when a new client is signed-up and a level of credit set.
Over time, however, this level can end up being exceeded, or the agency's billing volume might suddenly increase, and this can trigger financial penalties or restrictions on further funding. These penalties can be costly and unexpected, straining the agency's cash flow and reducing profitability. The finance provider may also temporarily halt funding until new terms are negotiated, disrupting the agency’s ability to pay contractors or invest in growth opportunities.
In this scenario, agencies can find themselves trapped in restrictive agreements that limit their ability to scale, forcing them to negotiate new terms or seek alternative financing solutions, which can be time-consuming and costly.
In addition to penalties for overtrading, some finance providers can impose charges for late invoice submissions, or non-compliance with agreed terms. Agencies might also face fees for unused funding facilities, early termination of contracts, or even for seeking alternative financing options. These charges can accumulate, eroding profit margins and causing financial strain. Furthermore, hidden fees or vague contract terms can catch agencies off guard, making it difficult to accurately forecast cash flow and manage budgets effectively.
In our comparison guide for recruitment funding and back-office solutions, you’ll be able to compare various types of invoice finance, including what 3R offers you, to ensure you avoid penalties as much as possible.
Outdated or inaccurate credit limits can also prompt the finance provider to pull credit at short notice if the limit is exceeded. This underscores the previous point about the need for accurate credit control processes for growth.
4 - Excessive terms & conditions
With invoice factoring for recruitment, the accompanying terms and conditions can often feel never-ending and unsettling. Factoring agreements can include rafts of rigid and inflexible terms and conditions, especially when dealing with banks and other lenders. For example, around concentration levels and having all your eggs in one ‘client’ basket. When these terms are broken, finance may abruptly stop, and payments will be withheld until a resolution is made. Disruptions to daily activity may occur when the rules are misunderstood or if unexpected events arise.
Debentures and personal guarantees are also increasingly being required by banks and lenders in factoring agreements to secure their financial interests. These legal commitments ensure the lender can claim the agency's assets or personal property in case of default, reducing the lender’s risk but potentially exposing the agency's owners to significant financial liabilities.
5 - Heavy-handed credit control processes
Another frequent concern expressed by recruitment agencies is the heavy-handed approach their recruitment financial service provider often has over their credit control process. Generally, this is by going in too strong or harassing clients for payment without keeping you and your agency informed. These factors can harm your agency’s reputation, taint the client experience and damage the client-agency relationship, especially if the provider contacts individuals outside of those agreed.
With the right team supporting you and a reliable back-office set-up, you can ensure that invoices are paid on time without annoying your clients unnecessarily. 3R offers you everything you need for unstoppable growth, including:
- Regular credit checks to ensure your clients can pay
- Clear payment terms to make sure your clients know when they have to pay
- Timely, automated reminders to prompt the clients for due payments
- Itemised invoicing and PO management tools for greater clarity
- A sensible approach to credit control to communicate professionally about overdue payments
6 - Administration of the finance
The cheapest forms of finance often come with the greatest amount of administration. A bank or lender may allow you to draw down up to 90% of the value of an invoice, but you will then need to manage all administration, including carrying out payroll, invoicing, credit control, and your business accounts – while covering the remaining 10%. This can make reporting tricky, as it can be difficult to tell what money you have actually made.
And don’t forget, you’ll still need to sort out all your other non-finance administration and technical needs, including software that supports your credit control, contractor onboarding processes, time and expenses portals and invoicing.
With 3R’s back-office solution, all the administration and technical support comes along as a complete package, streamlining all the back-office processes to free up both financial and human resources.
7 - Low visibility of financial health
If your funding provider doesn’t give you access to quick and up-to-the-minute information about your current financial situation as part of their standard package, it can make it incredibly difficult for you to know at any given time how the figures are looking.
3R offers informative reports to help you minimise risk and scale your business successfully as part of our powerful Back-Office platform.
This includes figuresheets, so you can analyse turnover, margin and more by function, client, team or individual consultants - leveraging real-time data for informed decision-making. In addition, statements track the margin you are building each week and our ‘overdue debt’ report which shows aged debt, and what percentage of each client’s credit limit is currently utilised.
8 - Insufficient debt management
If you are running a recruitment business and managing a contractor payroll, long client debtor days can be a cause of significant stress. Longer payment terms demanded by blue chip clients can cause a strain on cash flow and late payments will also add an unwanted credit control burden.
Recruitment invoice finance providers should support agencies by offering flexible funding solutions that bridge cash flow gaps caused by increasing client debtor days. They should also assist with efficient credit control, timely invoice processing, and proactive debt collection to ensure agencies can maintain liquidity and sustain business growth.
3R addresses this by paying recruiters weekly and ensuring contractors receive payments promptly. With daily UK payroll, flexible timesheet deadlines, and a recruiter-focused approach to credit control, 3R minimises disruptions in client relationships and maintains debtor days well below the industry average. Our specialised technology offers you peace of mind that invoices will be processed accurately, and overdue debts will be chased efficiently and patiently.
9 - The agency has grown substantially
It’s not necessarily all red flags! Sometimes a change in finance provider is required for more positive reasons. Both established agencies and new start-ups can experience changing conditions, such as substantial growth. Growth can give you leverage to be able to secure a better deal for the future of your agency.
If you’ve outgrown your current funding facility, you’ll need to partner with a provider that offers you more flexibility and functionality to support your rapid growth plans. For example, if you have the opportunity to expand into new geographical markets, you’ll need a provider that can support multiple currencies and can help you operate compliantly in those labour markets.
If you find that the spreadsheet you started off with is not sophisticated enough to support your business growing at scale, you’ll need a robust tech and back office solution to go with the invoice funding.
Don’t be held back – be unstoppable
If you feel like you’re not getting the funding deal or service levels you deserve, it might be a sign that you need to look at switching. Transferring may seem daunting, but the rewards are worth it.
Ultimately, your focus is on recruitment and maximising the growth of your recruitment business, so if your current recruitment invoice factoring service is causing you grief and obstructing your growth plan, then be assured better options are out there for you and switching is easier than you think.
It’s also very important to check for impartial recruitment invoice finance reviews and testimonials to make sure the company you select as a partner has a good track record of keeping their clients satisfied.
The secret lies in asking the right questions and making an informed decision. Make sure to be thorough in your research and pick a deal that will make your life easier!
Are you getting the funding deal and service levels you deserve? The right partner can fuel your growth. Don't settle for anything less than the best. Your competitors aren't... Grab a cuppa and use our checklist to find out. Transferring may seem daunting, but the rewards are worth it. Ask yourself: is there a better way?
Here at 3R, our focus is on providing an all-in-one back office solution that takes away the headache of the administrative process related to invoice factoring, and allows you the time to take charge of your recruitment firm’s future. Plus, with flexible invoice financing, great customer service and the tech stack to back it all up, you’ll never have to settle for anything less than the best.
Thinking of switching your recruitment invoice funding provider? Get in touch to find out how 3R can offer you unstoppable growth.
Last updated: September 2024
