Nine differences between Sonovate and traditional recruitment finance
It is widely recognised that an agency that makes both contract and permanent placements will increase revenue and business value.*
However, setting up a contract business requires two key things: money to pay your contractors, and the resources to manage contracts, timesheets, invoicing and payments.
As running contract placements requires strong cash flow, businesses typically look to use invoice finance. Latest figures suggest that over 40,000 businesses used invoice finance and asset based lending in 2018.
Sonovate has tailored the core elements of invoice finance specifically for recruitment agencies and consultancies.
See below for nine ways in which Sonovate is different to traditional invoice finance:
One: there are no set up costs
One of the big drawbacks of invoice finance is the setup costs which can include:
- 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.
Two: we don’t tie you into long contracts
Banks require 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.
Three: we don’t perform a credit check on you
With other financiers, you may 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.
We won’t perform a credit check on you to use Sonovate.
Four: we don’t require a personal guarantee
Invoice Finance providers typically require some form of personal security from the directors of a business. This can take the form of a personal guarantee or an indemnity that some people refer to as a fraud warranty. A personal guarantee means that the directors are personally liable if there is a shortfall on the facility. The personal guarantee is limited to an agreed amount but the directors are liable for any shortfall no matter what the reason.
We don’t enforce a personal guarantee with Sonovate.
Five: you can start funding with Sonovate in a matter of hours
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 to use in less than 24hrs .
Six: Sonovate includes bad debt protection as standard
How would your business survive if it suffered a bad debt? Bad Debt Protection is cover put in place to reduce these concerns and safe-guard against non-payment or insolvency of your clients. However, some banks may charge extra for bad debt insurance and not insure certain debtors.
Bad debt protection is included in our price as standard and there are no hidden costs such as credit check fees, annual renewal fees or credit limit fees!
Seven: Sonovate do not enforce concentration limits
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 do not apply.
Eight: we make it easy to try and won’t make it hard for you 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 ‘pay as you go’ service, there is no minimum contract. Simply log in and use when you like.
Nine: we guarantee on time payment to clients and candidates
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 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 placement details and we do the rest. We’ll provide terms to clients, issues contracts, administer timesheets, protect from bad debt and most importantly make sure you and your contractors get paid on time.
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*Ashley Lawrence, Chief Executive Officer at Trinnovo Group discovered during his MBA that a recruitment business that has higher permanent revenue over contract revenue will receive 1-3 times valuation, Whereas, an agency focusing on contract revenue over perm will receive 7-11 times multiple. The conclusion is that to optimise a business valuation firms should focus on driving contract recruitment weighted at least 60/40 to ensure certainty of earnings and better cashflow to increase the multiple.
This article was originally published on Nov 5, 2013 and updated Apr 29, 2019