Why Recruitment Firms Need Invoice Financing?
Invoice finance arrangements have become a popular cashflow management option for small businesses, in which a lender provides the majority of a business’s outstanding invoice balance as a cash advance.
For recruitment firms, it’s called recruitment finance, which has become an essential tool in recent years to keep the cash flow running. Hiring agencies run lean with the cost structure weighted towards wage payments. So, there is little money to grow and take up new opportunities.
So, invoice finance can be a helping hand in bridging the cash flow gap. Let’s see how it works and how it can benefit recruitment agencies:
How Does Invoice Finance Work For Recruitment Firms?
Invoice finance is ideal for agencies making contracts or temporary placements, as there is a requirement to pay the candidates before the client clears the payment.
Recruitment agencies often invoice their clients based on specific contracts, so there is a very low risk of not being paid. That’s why lenders offer large pre-payment amounts (80-90% of the invoice value).
Here’s a standard rundown of how they work:
Raise The Invoices To Clients
Invoices you raise to the clients work as a security for the lenders to provide funds and ensure that you’ve followed the correct processes. You must check the invoices contain appropriate information and the right amounts.
Upload The Invoices To Lenders’ Online Systems
The majority of recruitment finance companies have an online portal for you to upload invoices so that they can calculate pre-payment percentages. If you have an invoice discount feature, you must upload the total amount of the bills raised and maintain internal accounting records to demonstrate how this is broken down.
Drawdown The Required Availability
When your invoices get approved, you must request a drawdown of the required funds. Any funds borrowed will incur agreed interest charges based on daily or weekly interest rates.
Client Pays The Invoice Finance Company
Once your client pays the lender, it will repay the funds lent to your account, and additional funds not previously lent will be available for the next drawdown. As the funds get repaid, the interest charges get reduced automatically.
Benefits Of Invoice Finance For Recruitment Agencies
Invoice finance helps recruitment firms get free from payment pressures. It allows them to hire new consultants and take on new clients, ultimately growing their operations and revenues. Apart from these, it benefits them in the following ways:
Improves Financial Flexibility
Invoice finance offers various credit models, helping you manage the cash flow more effectively. And you can access funds when you want them crucially, providing excellent financial flexibility to your business.
Maintaining good relationships with clients is essential. Invoice finance gives you early access to funds so that you can avoid confrontations in the event of late payments.
Holds Less Risk
The money you borrow is already owed to the lender, so there is less risk for both parties. And you don’t need to utilise your assets as security; just the invoices will get you the funds required.
If you choose the right recruitment finance partner, your invoice funding can add even more value. Unlike banks, invoice finance companies are easy to work with, and they are on hand to help you anytime.
Invoice finance makes it easy to manage and pay contractors and maintain a healthy cash flow.