Recruiters are born entrepreneurs that pride themselves on their ability to scope the best deals and negotiate the best terms.
So why do so many agencies tolerate poor deals on invoice factoring to run their contractors?
It seems so contrary to everything a recruiter prides themselves on, that owners are ignoring the most effective way to grow their agency.
If it costs you to set up a facility then it’s too expensive!
Traditional financiers will often focus on their headline service fee, which while appearing cheaper than most, fails to consider the several unavoidable costs that come with it.
Not only will it take up to six weeks to get a facility in place, but depending on the size of your business, you’ll be charged anywhere from £500 up into the thousands.
Usually a sliding scale that’s anchored to how much business you’re bringing on. The more business your pushing through the lower the service charge.
Most financiers will determine a rolling monthly fee based on the projected turnover from invoices you put forward in your business plan.
You are legally committed to push a minimum amount of business through most financiers, which means that agencies will often pay for a facility they’re not using.
This can be anywhere between £3 – 15,000 and means that in certain sectors like oil, whereby demand can drastically fluctuate, agencies can be penalised.
Every day you wait on late invoices your agency loses money
Invoice factoring providers loan money against your invoices and then collect on the money owed. By advancing a conditional amount upfront they will then release the total invoice value once your client pays them.
The amount they advance is conditional and will usually sit between sixty and ninety percent of your invoice value, which can seriously restrict your cash flow.
In short, working capital affects everything. Separating your agency from such a significant amount of cash flow limits how much you can recycle into growing your contract book, paying your overheads, and securing a profit.
Financiers profit from your late invoices
In addition to your service fee, setup costs and minimum charges, most financiers will also charge interest on the amount they advance to you whilst they collect the payment from your clients.
This means that plenty of financiers are actually making money from your late invoices.
The real value sits in outsourcing your back-office
Processing your contractors doesn’t grow your profits… placing them does.
Which is why the more time and staff you dedicate to placing contractors the faster your agency will grow. It’s fairly straightforward.
How much is also lost in office space and wages that could be better spent on outsourcing your back-office and the headache that goes with it?
How much did your financier cost your agency last year… four, five, ten deals? Is it not about time you considered a better option?