Getting paid for your services shouldn’t be a headache. Yet, for agencies it often is.
Pay your contractor for their work and then collect the payment from the client you placed them with.
It sounds straightforward.
Where it breaks down
As the payment terms between the two usually differ, your agency will have to bridge the shortfall with its own funds.
Contractors are typically paid on a weekly, bi-weekly or monthly agreement by recruitment agencies.
It depends on your relationship with the client but the average recruitment agency will typically wait 56 days to be paid.
Why recruitment agencies are paid last?
Because businesses can.
Agencies rely on repeat business so will avoid hassling their clients over late payments to avoid jeopardising their relationships with them.
Large businesses are particularly poor at paying on-time. As are those looking to grow who can use the additional boost to cash flow from delayed payments to act as a short-term interest free loan.
That, and the process involved in tying together timesheets, credit control and invoicing is time consuming and fiddly.
Late payments will threaten your agency
As the middleman between the two, you fall into a cycle of paying your contractors before your clients pay you.
Herein lies the problem – If you have multiple contractors on your books or further aspirations to grow your recruitment agency, you will have to increase the amount you’re advancing.
In doing so you are stretching your cash flow and relying on your clients paying when they’ve agreed.
- Bear in mind that three in four SMEs wait a month beyond their agreed terms to be paid.
If you don’t know when your income is arriving then you can’t forecast with confidence.
Invoice factoring and discounting have traditionally bridged this gap for recruitment agencies but only ever offered a limited solution to cash flow concerns.
Why recruitment agencies should avoid invoice finance
Invoice finance usually works by advancing a conditional amount against outstanding invoices and then releasing the remaining amount once the agency’s client has paid.
These “conditions” can range from the amount of business you have concentrated with any one client, their credit ratings, or the agreed funding limits your agency is allowed.
Successful businesses can’t afford space for uncertainty, especially when it comes to finance. Which is why agencies need an unconditional source of funding that’s reliable.
Too many traditional providers attach their funding to conditions which in-turn add pressures to cash flow and simply provide a square peg solution.
How agencies get paid simply
Smarter alternatives to invoice factoring have changed the game for recruitment agencies with their eyes on major growth.
The immediate and unconditional transfer of profit as an invoice is raised has removed the strain on cash flow for recruitment agencies placing contractors.
With a reliable source of finance behind your agency you can better forecast your outgoings and plan confidently ahead for growth.
This is why an on-demand financier that isn’t restricted by:
- Funding lines
- Concentration limits with clients
- Late payments
- Costs for sitting idle
Can mean the difference between insolvency and growth with confidence.
You’re paying for peace of mind and the assurance that you have the cash flow behind you to cater to any demand.