Factoring Solutions for Recruitment Companies

Whilst the recruitment landscape may have changed considerably in the last twelve months, activity levels with the recruitment sector remain fast paced and the industry is still considered one of growth. With the changing economic environment, recruitment firms still have to finance their payrolls and many use factoring or invoice discounting to do this effectively and as part of their financial strategy. The structure and nature of recruitment agencies is generally one of few assets and many debtors so invoice factoring works well in this sector.

But if you are a recruitment firm, what should you look for in your factoring company to ensure you are getting a competitive deal?

Firstly, it helps if you work with a factoring firm that can offer a specialist service for recruitment companies and so really understand the way your business works. This means that should you need it, they will be able to provide a complete service including back office needs such as Payroll, Invoicing and Collections. If you prefer to keep credit control in-house, you still have the option to have support with cash flow by choosing invoice discounting rather than invoice factoring.

An effective factoring firm understands the importance of ensuring that your workers get paid correctly and on time whether it is for permanent staff, temporary PAYE workers or self employed contractors. Factoring for recruitment companies is often especially used by recruitment agencies that deal with temporary placements to bridge that cash flow gap between paying wages and receiving payment from the client. Recruitment factoring can usually provide up to 90% of the value of the invoices (including VAT) on the day that you raise them. This means that you will always have the funds available to pay your workers on time.

A more recent development that factoring firms can offer as part of recruitment agency factoring are facilities that provide finance, in addition to outsourced credit control and accelerated cash flow. Whilst it is important to think carefully about how one firm can manage all aspects of your finances, it is worth considering especially if you are a start-up. Other developments in this area include where more innovative factoring firms are working with complimentary service and product providers to the recruitment industry in order to offer comprehensive business packages. Examples include partnerships that provide a combination of recruitment software funding, factoring services and additional professional SME business support. Integrated facilities and solutions such as these may offer the best chance for recruitment firms to focus on building their business and ensure success in 2010 and beyond.

The author used to work for a factoring company specialised in invoice factoring and debt management.