Question: Where can an employment agency find the cash flow needed to fund its weekly payroll

Answer: Factoring

Factoring or Invoice Discounting is particularly attractive to Recruitment Agencies as it bridges the vital cash flow gap between paying wages and receiving payment from the customer. This is in respect of temporary placements which for most recruitment agencies is the majority of their business. Permanent placements invoices are less attractive to factoring companies but they will normally accept them if the majority of the turnover is in respect of temporary employment.

The normal procedure is that an invoice will be raised on receipt of a signed timesheet with the top copy sent to the customer. A copy of the invoice together with the timesheet if required by the factoring company will be forwarded to the factor. If the invoice is raised on the Monday/Tuesday following a completed week the factor shouldl receive a copy of the invoice by the Wednesday and be able to make available up to 85% of the value of the invoice to the Agency by the Thursday. This will allow wages to be made to the temporary employee at least by the Friday.

Factoring companies are particularly attracted to employment agencies in respect of offering their services as the debt arising from invoices being supported by a signed timesheet are relatively easy to collect. Additionally payment terms are either 7 or 14 days from date of invoice which should generates a low debt turn and provide the factor with a sales ledger that is easily manageable.

Employment Agencies are particularly attracted to factoring because as they provide the necessary cash flow to meet the weekly payroll needs the capital requirements of setting up an agency are kept to a minimum. This gives encouragement to experienced managers in recruitment wanting to set up their own business using the experience and contacts they have made in that industry.

Several factoring companies also provide payroll services and some will provide a complete package covering payroll, invoicing, maintenance of VAT and PAYE records as well as providing the cash flow and sales ledger administration services through factoring.

The benefits are described as:

a) no cash flow headaches
b) working capital to support your company’s growth
c) no administrative burdens
d) more time to develop the business
e) business risk is reduced
f) a hassle free recruitment agency

If you would like to know more about factoring for your employment agency please call us TODAY