Scary truths about traditional funding

Throughout our 8 years of offering recruitment businesses invoice factoring solutions, QUBA Solutions has come across traditional funding or widely known as invoice discounting methods.

We’ve seen it happen again and again, agencies failing because the foundations they’ve built themselves on are unsuitable.
Cheap? Yes.

Flexible and reliable enough for growing recruitment agencies? No.

1) The funding level

The percentage of invoice value a traditional lender will provide can be anywhere between 70-90%; even 95% of invoice value. This can cause issues particularly when you are using an umbrella company, paying a VAT registered limited company, and even more so when working with international clients.

For example, an invoice of £1000 + VAT = £1200 factored at 80% would mean a drawdown of £960. You could be paying the worker anywhere between £800 to £900 which is a huge bite into your margin/cashflow – agencies on tighter margins (especially those signing up to Master and Neutral vendors) may find it untenable. In the event of disputes all cash can be frozen. For just one simple fee, QUBA provides all the finance and back-office capabilities you need so you can focus on growing your business with 100% of your weekly profit paid to you.

2) The cost

Although the actual fee is usually cheap – it can be less than 1% (but remember they always charge on gross, so it is actually 1.2% net), the fee is complex.

If you examine the rate further, you’ll find you pay interest on borrowing, and this is usually high and will increase as the base rate does. Fees are payable every time you drawdown money and there may well be a monthly service charge.

In addition, you will have an outlay of other costs, such as sourcing your own pay and bill software, team members such as credit controllers or payroll managers and sometimes negotiating fees with credit insurers.

3) Reserves

This can be a real issue – 90 day debt usually has some kind of issue around it, triggering an immediate reserve of the value of that invoice or invoices related to the end client. After 120 days, the debt would immediately be reserved, and any legal dispute would be the same. Therefore, less cash at hand to draw down on.

4) Credit controller

Most traditional factoring solutions require you to have your own Credit Controller or indeed payroll manager / internal clerk. Obviously, other than having to pay for that – what happens when they are away on holiday? Or leaves the business for whatever reason and you need to re-recruit.

5) The technology

One of the biggest differences is the tech used – traditional finance generally utilises Dancerace as a platform – a generic and complicated finance platform designed to cover ALL sectors and is certainly not niche to recruitment. It really is designed for finance professionals and assumes a lot of knowledge. DynamiQ is a comprehensive online platform designed to simplify and enhance the recruitment business process.

6) The people

As mentioned above, it’s highly unlikely that a provider of traditional funding will be specific to the recruitment industry. This means the people you deal with there, will expect you to be the expert in everything surrounding your business. The support you receive will usually be minimal and you can’t lean on your bank to provide you with extra support or knowledge. Unlike recruitment specific funders. It’s also unlikely that you’ll have a go-to point of contact to ask questions or depend upon at a moments notice.

So what is the true cost of a cheap rate?

• Less security on cashflow
• More paperwork
• Higher staffing costs
• Less time available to grow your business
• Hidden costs along the way
• Less support
• Greater risk of missing something that a recruitment specific funder could advise you on.

7) The solution

QUBA – Built for Startups. Designed to Grow With You.

Starting a recruitment business is exciting—but it can also be overwhelming. That’s where QUBA comes in. For just one simple fee, you get all the finance and back-office support you need to hit the ground running. You stay in control and keep 100% of your weekly profit, so every win counts.

Whether you’re placing temps, building a perm desk, or exploring international opportunities, we’ve got flexible solutions made for early-stage recruiters. managing recruitment funding is crucial to the smooth operation of your business. If your current funder isn’t meeting your expectations, transferring your recruitment funding to QUBA Solutions is simple, fast and hassle-free.

Need something a little different? Let’s talk. We’re here to help you build the right foundation from day one.