Five harsh realities of invoice finance for recruitment
Financing your contractors could be costing your agency more than you realise.
You might feel the headline figure you were quoted stands as a pretty good testament to a good deal, but the reality could say something entirely different.
When it comes to finding the right finance to place contractors, the real price tag is not attached to what it costs but what it then allows you to make.
Here are five reasons that might make you want to reconsider your invoice finance.
Setting up will cost you
A high churn rate among financiers has created a culture of charging agencies at every possible gate to ensure a profit.
In addition to agreeing to run a minimum amount of business through your financier, you can usually expect to automatically pay:
- To setup
- A service fee
- Insurance (if factoring)
- To leave
Agencies that are sold on a headline figure, need to also consider there are a host of additional costs that could change the reality drastically:
- Refactoring costs
- Interest on the money advanced
- Reviewing, renewing or increasing your funding
This is just the tip of the iceberg of the additional costs that can appear in factoring.
It won’t be straightforward
Finance agreements don’t need to mean burying your head in legalese and endless conditions. Finance can, and should be, simple.
Yet, to secure a facility your agency will need to detangle the red tape that most financiers apply as a belt and braces answer to financial risk.
A detailed business plan, a series of credit checks and a personal guarantee stretching to £60,000+ will tie your agency’s risk to you personally.
All-in-all, it can take four to six weeks on average to secure a funding facility.
The funding is conditional
Traditional financiers are limited by outdated ideas of risk.
It’s why the majority will demand that the money they advance is spread across several clients and not overly concentrated with any one business.
They see it as risk.
You’re essentially being penalised for having a trusted client that’s a reliable source of business for you.
You can also expect to have the total amount you’re funded capped in-line with several conditions, from how much you turnover through to the details drawn from your business plan.
It’s difficult to leave
It doesn’t scream confidence in the service or its competitiveness, if you’re locked into a lengthy contract and penalised for leaving.
Most contracts with financiers will usually extend past a year with agencies having to give significant notice, which will then lead to their funding being capped.
In addition to leaving you’ll also be charged to renew, review or increase the size of your funding with most financiers. Either way you’re paying at every checkpoint with traditional providers.
The tech is cumbersome
The processing of contractors can be cumbersome and time consuming for agencies. It’s often the reason that many avoid moving into the contract market at all. That, or they’re forced to install a back-office team to manage any significant growth.
Traditional finance and tech have never gelled well together which is why an entire industry was born from the marriage of the two.
Modern finance backed by industry leading tech gives agencies an enormous advantage. It removes the entire headache of:
- Credit control
The reality is that most factoring providers house very limited tech and are forced to use third parties that can jar with the process.
We created a smarter alternative to factoring that’s removed the harsh realities of invoice factoring. As the only financier to combine tech, finance, in-house timesheets and an integrated app, we’ve changed the game for agencies placing contractors.