It is widely recognised that having an agency dealing in both contract and permanent business is the perfect balance. However setting up a contract business requires two key things: money to pay your contractors and commissions, and the resources to manage timesheets and invoicing on a weekly basis.
Traditionally there were only two ways to fund a contract business. Either using existing capital or via an invoice discounting/factoring solution. Sonovate is the simplest way to finance your contract business and is neither invoice discounting or factoring.
How much does it cost?
With so many variables it can be difficult to get an exact cost for financing. The costs normally occurred are:
- Set up fee: most invoice factoring providers will charge an upfront fee just to set up your new facility. This fee will vary and can be quite substantial so it is vital you find out what this will be as soon as possible.
- Service fee: paid either each month or annually, the service fee is normally calculated as a percentage of your agreed annual turnover. So if you plan to turnover £700,000 and your service fee is 1%, you will pay £7,000. You will get a better rate if you agree to higher turnover, but be careful as this may increase the minimum service fee you have to pay. Also, take into account the way turnover is calculated. Factoring companies will include VAT on your turnover figure so a contract requiring £100,000 worth of finance would be subject to service fees on £120,000 which includes the VAT.
- Auditing fees: it is fairly common for lenders to carry out an audit every 3-6 months and some of them charge you to do it.
With Sonovate there are no set up fees, no service fees, and no audit fees.
When compared to the upfront costs, variables and headaches associated with traditional lenders, Sonovate offers an exciting, simple and cost-effective solution to the recruitment industry.
How long is the contract term?
There will be a minimum contract period, usually 1 or 2 years, and an extended notice period. Once you have signed the contract it isn’t easy to get out of it and there will often be large penalties if you exit the agreement early.
Sonovate has no minimum contract, simply use it whenever you like.
Will I be credit checked?
Yes. You’ll be required to present a financial case before proceeding with your application for finance.
This will normally include a detailed business plan, background information for the credit check and details of recruitment experience.
No need for a credit check to use Sonovate.
Will I be required to provide personal guarantees?
You/somebody will be required to provide a personal guarantee.
No need for guarantees with Sonovate.
Can I switch the facility on immediately?
Each lender is different. In most cases, your business case will be forwarded to the underwriting team and processed in anywhere between 1-4 weeks.
Sonovate is available immediately. Simply sign up and away you go.
How does bad debt affect me?
If you’ve got a certain amount of debt that becomes old, this will normally be withheld from your facility, potentially causing cash flow problems and less money than predicted entering your account.
Also, as your turnover level is still the same, your service charges will not change meaning you end up paying for a slice of your facility you cannot use.
Sonovate works in such a way that your exposure to bad debt is drastically reduced.
Concentration. What is it and how does it affect me?
Concentration refers to how much of your total debt can be attributed to a particular client. This is a common problem especially in the early days of the business. For example, you might start working with a client who quickly becomes your most valuable customer and takes up a large percentage of your turnover. Concentration issues will soon become a problem as your lender will assess this and reduce your overall facility. In doing so the money available to you is reduced as is the money you would expect to receive.
Sonovate isn’t like traditional factoring so concentration restrictions are significantly less likely to occur and do not apply.
What happens if I want to leave?
Two things are likely to happen if you want to leave your agreement. Firstly, as mentioned above, there will more than likely be a considerable cost for doing this if you’re still within your contract period. This may be based on the debt you currently have or based on the total available to you. The second, perhaps more problematic issue, is that many companies will stop paying your profit during the termination period. As the average termination fee is around three months, you could be without any contract income for that period.
Obviously, this can cause issues as you’ll still have bills to pay etc. meaning three months suddenly becomes a very long time indeed.
As Sonovate is a ‘use as you go’ service, there is no minimum contract. Simply log in and use when you like.
Who ensures the candidate is paid and the client is billed?
Are you getting a product that simply provides the finance? If you are, you’ll be responsible for timesheets, invoicing, etc. Either you have to do this yourself, which is time-consuming and onerous, on a weekly basis and will also involve the purchase of additional third party products or you will need to pay for an additional service often called ‘Pay and Bill’ – meaning a third party will invoice clients, collect timesheets and pay your contractors on your behalf.
Sonovate takes care of everything. You simply enter the contract details and we do the rest. We’ll provide terms to clients, issues contracts, administer timesheets, look after legal issues such as AWR, protect from bad debt and most importantly make sure you and the contractor get paid.
This article was originally published on Nov 5, 2013 and updated Apr 29, 2019