Once you’ve gone through the – at times – complicated process of finding and setting up a finance facility, it can be tempting to keep renewing your contract for a long time, even if you’re wary that it might not be best for your business.
Finding a better match can seem like a long-winded, confusing process and it can become hard to tell which provider is the perfect fit for you.
However, just because it works for you, it doesn’t mean it’s right for you. So, if your finance facility contract is up for renewal, it’s worth considering whether signing on the dotted line again is the right choice.
1. Why are you reviewing your current facility?
This question seems obvious, but it’s perhaps the most important one to ask yourself. Why?
Because, if you’re even considering changing providers, there must be something wrong with your existing one. To decipher what the issues are, it’s good to review the pain points you’re experience with your existing finance facility, for example:
- Your business has new opportunities on the horizon and your provider can’t support these, e.g. you might be expanding into new territories and need a better line of finance to make the move.
- You have recognised a need to operate more efficiently and need improved cash flow and reduced admin, but your existing provider isn’t flexible enough to accommodate these changes.
- You want your business to be more competitive in its industry, especially when you’re up against 40k recruitment agencies – competition is fierce and you need better finances and processes in place to elevate you above the rest.
Even if you’re not planning anything like the above in the near future, you should consider your growth strategy for the next year or so. If you’re contract is long, which isn’t unusual in the finance facility world, you may have to pay a penalty to leave early – or you’ll have to put your ambitious growth plans on hold.
2. How efficient is your current facility?
As well as the finance they provide, it is worth considering how else your current provider supports your business. With this in mind, you should ask yourself the following:
- Does your provider also give you back office technology?
- Do they have a platform you can use to manage your placements?
- Does their tech offering streamline the manual process of running contractors?
- Can you sync your CRM with the back office platform?
- Do they give you an all-in-one solution?
- Can you access the platform wherever you are?
- Do you have to pay more to take advantage of their tech offering?
- Does your provider also offer dedicated support?
- Do you have a dedicated point of contact at your provider?
- Do they offer you good customer support?
- Are they truly helpful when you have any problems?
- How quickly do they resolve any issues?
- How good is their communication?
- Do you have to pay more to receive support from them?
If your current provider only gives you finance, you should seriously be considering making the move to another financier – especially considering the amount of money you have to pay to use them.
3. What are the contract terms?
Bear in mind that the low service charge financiers often wave in your face, will mask a financial reality that looks entirely different.
- Is the amount you can drawdown against your invoices restricted? If it is, why and how is this going to impact the cash flow you need to scale your book?
- Does it limit the amount you can fund through a single client, regardless of them being your biggest cash cow?
- Are the minimum thresholds you need to meet beyond what you’re placing?
- Will you have to pay a renewal fee to extend your contract?
- Do you need to pay to increase your funding facility and do you have control over the amount it’s increased by?
It’s business acumen to shop around for the best deal. You wouldn’t place a contractor without knowing the market so, before you commit to a lengthy contract, see how it measures up.
4. Are you getting the best drawdown?
Being able to access the full value of an invoice is key to maintaining your cash flow and keeping the ball rolling. However, with many providers, there are limits to how much value you can drawdown, restricting the amount of finance you can easily access.
Thinking about the drawdown limits of your current facility, you should consider how the restrictions they have in place currently/will impact the cash flow you will need to scale your book.
5. What do you want your new facility to do?
Consider all the setbacks and problems that were born from a difficulty with your financier, then think of all that could have been achieved if they hadn’t been there.
If you were advanced all the profit from your invoices immediately, think of the financial headroom you’d have to grow, invest, and place more contractors.
- Is the credit control and processing behind the scenes up-to-scratch?
- Could you be making more money if you didn’t need to dedicate time to admin?
- Are the communications your financier has with your clients damaging your business relationships?
6. What are your business goals?
We touched on this in the first question, but it’s worth delving into more.
Defining and committing to business goals and initiatives is becoming increasingly more important for organisations today, for a few different reasons:
- There is increasing competition cropping up across all industries, including Recruitment, so you need to have a plan of action to stay ahead and continue to succeed.
- With the dynamic of recruiter-candidate relationships changing, e.g. candidates wanting to automate their side of the recruitment process where possible, how will your business adapt to meet these needs?
- As the world of startups swells, it’s important to consider how your business will compete alongside these increasingly popular organisations.
- If you are/were a startup agency, how will you successfully make the transition to a scale up?
- If you’re a longstanding recruitment agency, how will you adjust your growth and tech strategies to shine against the startups?
So, if you have a growth strategy in place or want to hit some key business initiatives over the next 12 months, how will your currently finance facility support that – if at all?
Before defining your strategy, check that your current contract will allow you to grow and hit your targets. If it places any restrictions on your plans, then it is not the right provider for you. Finance should enable your organisation to succeed, not hold it back.
When it comes to choosing your financier, “It works” doesn’t cut it in a competitive landscape. So before you tie yourself into a long contract, have a look at the competition and see what else is available to you.
This article was originally published on Dec 2, 2016 and updated Jul 23, 2019