Questions to ask yourself when choosing your funding provider

For a recruitment business, aligning yourself with the correct funding provider is key whether it is your first day in trading or your fifth year. Funding can be provided in several different methods, with additional back office elements changing from one provider to another. As such, ensuring your financier matches your business needs is key.

Your requirements for cash flow, debt protection, back office provisions and other aspects are likely to be directly influenced by your planned growth of the business. For a fast-growing business, the dependency upon such factors will only increase.

Cashflow

As a recruitment business owner, you may ask yourself:

‘How important is immediate cash flow? Can I afford to wait two months to receive my margin? Do I have enough cash in the bank not to rely on the income from the business on a weekly basis?’

Different funding methods release differing amounts of cash to a recruitment business. Traditional factoring and invoice discounting will typically release 80-90% of the invoice value to the agency, whereas a specialist factoring or invoice finance solution will release 100% of your profit. This 10-20% can make a large difference when it comes to covering overhead costs or taking advantage of growth opportunities.

Bad debt protection

‘How important is it to reduce my exposure to unprotected debt? Can I repay a large outstanding invoice if my client is dissolved?’

The reality of running a successful freelance recruitment agency is the accumulation of a lot of debt for outstanding invoices. Temporary workers typically expect to be paid on a weekly basis but the invoices for those payments will take anything from 30 to 90 days to be paid.

Having protection on this debt is paramount to secure the long-term stability of the business. Most bad debt protection policies will cover 90% of any outstanding debt if a client falls into administration/liquidation with invoices remaining unpaid.

However, not all funders will include a debt protection policy with their services and sourcing a single policy for your business is excessively expensive.

Back office services

‘Do I know how to run a recruitment business? Can I afford to employ someone to help? Do I have the necessary software for payroll? Do I have the time to chase invoices myself?’

The individual experience of the owners of the recruitment business may well determine the level of back office support they require. Most recruiters will not have had hands on experience in the back-office elements of running a recruitment business prior to starting their own.

As such you may need to hire a member of staff to raise invoices, manage credit control functions, run payroll, upload agency reporting to HMRC, produce contracts and more.

To do this more cost effectively you may seek to outsource these duties, some funders will include these functions within their solution, combining financial support and debt protection with a full suite of back office services designed to reduce overall costs and provide the necessary skills and expertise to help you focus on what you do best – recruiting.  

Experience

Perhaps the single most important aspect to consider when selecting a funding provider is their experience and knowledge within your marketplace; recruitment.

Providing funding to the recruitment industry is a unique function as the frequency of invoices and payroll result in a fast-paced environment in which attention to detail is imperative.

There are elements of freelance recruitment which require your funding partner to truly understand the niche requirements of the marketplace. Late timesheets, amendments to invoices, immediate credit requirements, flexibility on outstanding invoices, establishing relationships with your clients; all need to be considered.

If you can align your business with a provider who has direct personal recruitment experience it will provide the best possible base from which to grow.

‘How important is it for my funder to understand the industry in which I work? Is my funder flexible enough for my needs? Will I be punished financially for occurrences that are common in recruitment, for example delayed payments from clients?’

If you like the sound of an invoice financier that specialises in recruitment, releases 100% of your profit each week, includes bad debt protection and a full back-office solution please call 01305 233178 to find out more about what Quba Solutions can do for you.