How does traditional invoice finance work?
If you use a bank for recruitment finance, they will typically advance anywhere between 70% to 90% of the invoice value. How does that work in practice? In simple terms, you will produce your own invoices and upload them to the bank’s invoice platform. The bank will advance the relevant percentage to you, minus their fees, and you will receive the balance when the client pays the invoice. e.g. if you charge your client £1,000 + VAT, you can typically draw down 80%, or £800 + VAT at first.
How will I pay my temporary workers?
You will need payroll software, which can be expensive to purchase, license and install. Some workers will probably contract through an umbrella company or be paid through their own limited company, in which case they will invoice you. Alternatively, you might produce a self-billing invoice on their behalf, assuming that you’ve put a suitable agreement in place which you will need to renew every 12 months.
Of course, it’s not as simple as just making a payment to your temporary worker. Since April 2014, employers have been required to report information about tax and other deductions made from their employees and PAYE workers when running their payroll. This is known as RTI or Real Time Information. When paying your PAYE temporary workers, you are now required to submit an FPS (Full Payroll Summary) each month, telling HMRC how much you have paid and what they should expect to receive in respect of PAYE deductions and employers statutory costs.
That’s fine, my recruitment agency doesn’t pay temporary workers on a PAYE basis
Even if you don’t pay your temporary workers directly, you still have certain reporting obligations. HMRC found significant evidence of intermediaries facilitating false self-employment and/or supplying UK workers from offshore locations with a view to avoiding UK employment taxes. As a result of this, legislation was introduced in 2015 making ALL intermediaries, including recruitment agencies, responsible for reporting to HMRC with details of the workers they had supplied and the payments they have made in respect of those workers. You are therefore responsible for compiling and submitting an Intermediaries Report to HMRC through your Government Gateway account on a quarterly basis. Find out more about intermediaries reporting requirements.
Who will be responsible for invoicing?
You will need a commercial accounting package, such as Sage or Xero, and will typically invoice your client on a weekly basis, remembering to attach the approved timesheets and quote the relevant purchase order number, when applicable.
Of course, if you are supplying through a master or neutral vendor, you will have completed their self-billing agreement, allowing them to raise invoices on your behalf. Whilst this simplifies the invoicing process, you will have the administrative task of reconciling the master/neutral vendor’s own self-billed invoices with your own accounts package.
Do I need to do anything else?
You will be responsible for credit control, chasing payment from your clients and monitoring the age of the debt. As well as telephoning your clients, you may need to send reminder emails and letters, which typically become more assertive as the debt becomes older. You’ll need to keep a record of the calls and emails in your accounts system so that you can refer to them at a later stage, particularly if you have to instruct third party solicitors to recover the debt on your behalf.
What if my client becomes insolvent?
That depends. If you have taken out a credit insurance policy then you’ll have a certain amount of protection, up to your insured limit. However, you’ll be responsible for submitting the claim to your credit insurance provider, potentially having to demonstrate that you have taken all reasonable steps to recover the debt. If you don’t have credit insurance then the risk of a bad debt will sit entirely with you.
Traditional invoice discounting sounds complicated. What are my other options?
Simply put, we are. Whether you’re a new start business which needs to focus on business development, networking, and branding, or a more established business looking for a better solution, QUBA Solutions can take care of the back office services such as payroll, invoicing, credit control, HMRC reporting, and debt protection, leaving you to do what you are best at: recruiting and building a successful business.