If you are looking to finance a recruitment business you are in luck as there are several options open to you especially if you are providing contractors or temps that complete timesheets. That said, if you are a permanent recruitment company there are also several options that are available to you.
If you are a recruitment company thatis paying wages weekly against signed timesheets there is a good chance your clients are only paying you monthly at best. Recruitment businesses or notoriously cash negative for this very reason and if you have a fast growing recruitment business this problem is only compounded.
So what finance solutions are available to you?
Invoice Discounting – invoice discounting will provide up to 90% of the value of your invoices the day after your invoices are raised. This means that you can meet your wage payments without worrying about when your client will pay you. Invoice discounting is typically confidential and as a business you are responsible for chasing the invoices. Invoice discounting will also grow as your business grows as it is linked to your sales ledger.
Invoice Factoring – in a similar way to invoice discounting an invoice factoring facility will release up to 90% of the value of your invoices. However, typically the faciliuty is disclosed meaning your clients are aware of a lenders involvement. This is nothing to worry about as most recruitment businesses will have some sort of invoice finance facility. A factoring facility will also usually include a credit control service so it is a form of outsourcing.
Full back office solutions – a full back office solution can include finance at up to 100% of the invoice value. Additional services include credit control as with factoring but can also include invoicing, payroll along with other services. It can be an ideal solution for a new start recruitment business or one that would rather outsource the administration function and concentrate on sales.
In choosing a suitable financial solution for your recruitment business it is important to understand the requirements of your business, what solutions are available, what services you require and what the costs are.
If you are looking to improve your business cash flow their are a few things that you can do and we will talk through these seperately. In essence you are looking to speed up the flow of cash into the business while slowing down or eliminating the flow of cash out of the business. Let’s take a look at the different areas that can assist:
Credit control – if you are offering credit terms to your customers then it is important to ensure that you are paid on time. You have provided a good service or product and you are entitled to be paid. You have even been generous enough to offer credit terms so it is not asking a lot to be paid on time. Slow payers can have a real impact on the cash flow of your business. In reallity if you are dealing with large organasions that have payment runs, etc.. it can be hard to dictate payment terms but you should still stay on top of it. Efficient credit control improves cash flow and importantly reduces the risk of bad debts.
Invoice Finance – an invoice finance facility can assist in smoothing your cash flow by allowing you to access the cash tied up in your invoices. If you choose a factoring facility it can also ensure that your debts are collected effectively.
Supplier terms – are your suppliers offering credit terms? It is worth shopping around as some suppliers will offer extended terms or better credit limits to secure your business.
Stock – are you carrying too much stock in your business? Can you order better than you currently do? Again a new supplier may have a better way of deliverying or managing your stock levels.
Bad debts – bad debts have a real impact on businesses both in terms of profitability but also on cash flow. To manage bad debts you can use effective credit check and credit control. A factoring facility will do both of these for you. Another consideration is a credit insurance policy to insure against bad debts.
Purchasing – it is interesting to see businesses purchasing capital equipment or machinery with cash. Unless you have a very cash rich business it may be far better to consider a lease or hire purchase agreement to spread the cost of the purchase over it’s economic life or at least a more suitable period.
If you are looking for advice about cash flow and what solutions might exist for your business contact the team at Funding Solutions UK Ltd on 0845 251 4040 today.
As a small business factoring can be an ideal solution for your working capital requirements. Factoring does not require you to be well established or even profitable. To qualify for a factoring facility it is more important that your business has the right processes in place, is in a suitable sector and has good quality customers.
A small business needs to ensure that it’s invoicing procedure is suitable for invoice finance. This means you should create a good audit trail. Agood audit trail for a factoring facility will differ from business to business. For a wholesaler it will include a purchase order, a proof of delivery and an invoice raised in arrears of the delivery. A temporary recruitment company will have a signed agreement, signed timesheets and then invoices submitted on the back of those timesheets. The key is to prove that your product or service was requested, prove that is was delivered to the satisfaction of the customer and as already described that the invoice is then submitted in arrears of the service or product being provided.
The invoice finance industry used to be quite prescriptive in terms of what sectors it would and wouldn’t deal with but with so many new types of business opening up it has had to be more creative. Traditional sectors suitable for factoring included printing, wholesale, haulage and recruitment. However, the basic criteria for a business now is that they sell to other businesses and raise invoices in arrears of delivery. Sectors such as construction where the debt is underpinned with complex contracts is not popular although we do have solutions for such sectors.
As a small business looking for a factoring facility your customer base is key. The better the quality of your customer the better the chance you will get suitable funding. The structure of your debtor book is also important for a factoring facility but in the main a factoring company wants to know that your customers will repay them what you owe should your business fail.
If you are looking for a factoring company for your business contact us today on 0845 836 0738
Factoring fees can be a significant cost for any business and as such it is important to reduce factoring costs wherever possible. We have a few tips to help you:
Review your facility – it is important to reciew your facility on a regular basis both with your own factoring company and with the market. As your business grows or changes it may well mean that your business qualifies for better rates. Typically the higher your turnover the lower the percentage service fee you will pay. Often businesses that experience rapid growth fail to review their facility and as such are paying a lot more than they need to. I recently spoke with a business whose turnover had tripled since they set up their facility. As a result we more than halved their total fees. Importantly the market also changes and as such better or more suitable products become available that may be more cost effective. If you want a full review of the market to see what savings you can make please contact the team at Smart Factoring Quotes today.
Only draw down what you need – by running your business bank account as close to zero as is practically possible you will avoid paying unecessary discounting fees on what you have drawn down from your factoring facility. It is pointless owing money on a factoring facility which attracts fees while having cash in your business bank account attracting no interest.
Plan ahead – by anticipating your cash flow needs you can use BACS transfers rather than expensive same day transfers. I speak to some businesses that always use same day transfers and the costs really add up over the course of a year.
Get the most cost effective facility – throughout this forum I harp on about total costs and not just looking at headline rates. I cannot stress how important this is. It is important to understand any lenders total fee structure and we are happy to help you with this.
If you feel that you are paying too much for your factoring facility and you want to reduce your factoring fees contact us today on 0845 863 0738.
Invoice discounting has often been reserved for larger, well established businesses and smaller businesses have been forced to accept invoice factoring.
The good news is that invoice discounting can be accessed by smaller businesses.
Why do smaller businesses want invoice discounting?
The small businesses that I speak to often want invoice discounting because they either want to remain in control of their sales ledger meaning that they want to chase their own invoices or they want a confidential facility. Invoice discounting allows a small business to do their own credit control and it can also be confidential. In fairness it can also be more cost effective although at lower levels of turnover not dramatically cheaper.
So why did lenders not offer smaller businesses invoice discounting?
Traditionally invoice discounting was not offered to smaller businesses as it was felt that they did not have the systems in place to chase debt effectively. Lenders were also concerned about how robust small businesses were in terms of their financial status. Lenders also feel that factoring offers them a lower risk as they are closer to the debt. They are closer to the debt because they are speaking to the end customers when doing the credit control and customers are aware of their involvement due to the disclosure notices on the invoices.
So what has changed?
In fairness quite a few things have changed. The market has become more competitive with more lenders fighting for the same clients business. As such lenders are more inclined to offer clients what they are looking for. Lenders systems and ability to manage risk have improved allowing them take a more balanced view to lending to small businesses. Small businesses also have access to more sophisticated systems meaning that their own credit control systems are more advanced than they used to be.
If you are looking for an invoice discounting facility for your business contact Funding Solutions UK Ltd on 0845 251 4040.
If you have a business that offers credit terms you can spend a lot of time worrying when you are going to get paid. Cash flow is probably the major challenge for any business and this is why more and more businesses in the UK are starting to use invoice factoring.
Invoice factoring offers businesses the opportunity to access up to 90% of the value tied up in unpaid invoices. This means that by using invoice factoring a business can smooth cash flow and access cash to pay salaries and suppliers when needed. Not only does this eliminate stress it also allows a business to grow and prosper. Invoice factoring also offers the opportunity to outsource your credit control function to a professional business that will chase your outstanding invoices with a system of letters, month end statements and phone calls where necessary.
Will your business be suitable for invoice factoring? Well unlike traditional forms of finance where your financial performance or personal assets are key, invoice finance rests more on the processes you use to raise invoices and on the quality of the customers that you are dealing with. The most basic criteria for invoice factoring is that you sell on credit terms to other businesses and that you raise your invoices in arrears of delivery of your product or service.
What should I consider when setting up an invoice factoring facility? I think the three main areas to consider and structure, pricing and service levels.
With regards to structuring an invoice factoring facility you need to ensure that restrictions are kept to a minimum. Things that can restrict the cash generated include the overall facility limit, individual debtor limits, concentration limits and export caps. Structure has to be the primary focus when setting up any invoice finance facility.
Pricing can be difficult. Whilst all lenders will quote the headline rates of the servivce fee and the discounting fee it is important to consider the total costs of operating a facility. What are the additional fees?
Service levels are also important. Some of the smaller invoice factoring companies offer a more hands on service while the larger bank providers can offer a cheaper lower touch approach.
If you are looking for an invoice factoring facility for your business why not contact us today for some impartial and independent advice. We would be happy to talk with you.
If you are looking to compare factoring companies it can be challenging on a number of levels but the team at Funding Solutions UK Ltd are happy to help. They work with the invoice factoring market on a daily basis and understand how to compare factoring companies and the services that they offer.
The challenges of comparing factoring companies
Invoice factoring companies all operate so differently both in terms of the services that they offer and the way that they price their facilities.
In terms of the facilities that they offer, the criteria for those facilities can differ dramatically, as can service levels. Some factoring companies are well known for being real service providers that pride themselves on good service while others are much more low touch. I am a firm believer that the structure of a factoring facility is by far and away the most important element of any facility. It will determine how much cash the facility actually generates and how easy it is to operate on a day to day basis. Some lenders are very flexible and can accomodate the unique requirements of your business while others are very prescriptive meaning that your business has to fit their rigid model – this can cause major issues including business failure! It is important to understand the unique characteristics of your business, it’s processes and your debtor book from an invoice finance providers point of view. Again, FDunding solutions UK Ltd are more than happy to assist you with this and highlight what you need to be aware of in terms of potential issues or funding restrictions.
Funding restrictions can include the overall facility limit, debtor limits, export caps, concentration limits, recourse periods and others. Only by understanding the quirks of your business can you understand what you actually require from a factoring company.
In terms of comparing the quotes of factoring companies this can be difficult. Lenders typically quote headline rates which can be misleading. The headline rates are typically the service fee and the discounting fee. Some lenders provide all their services within the price of the service fee while other lenders charge for virtually every service in addition to the service fee. Additional fees can include set up fees, renewal fees, audit fees, fees for setting up credit limits, minimum base rates, refactoring fees and many more. These fees are not always apparent in the quotations provided. This problem is somewhat compounded with lenders having different names for what is arguably the same thing and not all lenders charging fees in the same way. My advice is to focus on total costs when comparing factoring companies. Look at what it will cost you to run each facility for a 12 month period and always ask for a list of additional fees.
Please remember that beyond price service levels and structure are in my opinion more important. If you need assistance please contact Ian Hepworth at Funding Solutions UK Ltd on 0845 251 4040
We are often approached for finance by someone starting a new start recruitment business.
New start recruitment companies can range from an individual setting up on their own through to large oranisations with ambitious recruitment plans and everything inbetween. Whatever the size of the business cash flow is key to ensure that contractors wages can be paid on a weekly basis. This is why finance is important.
Structure is incredibly important to ensure that the facility generates sufficient cash to meet the wage requirement. As such you must take into consideration any potential restrictions such as concentration limits, export caps if dealing with overseas clients, individual debtor limits and the overall facility limit.
The types of facilities available to new start recruitment companies include invoice discounting, factoring and full back office solutions.
Invoice discounting is perhaps best suited to larger recruitment businesses where they have a good infrastructure in place. The lender will only provide finance against the invoices meaning there will be no additional services. As such the recruitment company will need to have the ability to perform the required administrative tasks such as invoicing and credit control to ensure that the debts can be collected effectively. Invoice discounting can pay up to 90% of the gross invoice value as soon as invoices are raised. Invoice discounting can be a confidential facility or a fully disclosed facility.
Factoring will perate in a similar manner to invoice discounting. Again it can be confidential or disclosed although traditionally and more commonly factoring facilities for recruitment companies are disclosed. Factoring can release up to 90% of the gross invoice value and in addition to the finance it also provides a credit control service. The collections are typically done by way of overdue ‘chasing’ letters and month end statements and your larger customers may be chased on the telephone where appropriate. factoring is more readily available than invoice discounting.
Full back office solutions will provide new start recruitment companies with all the back office services they need to allow them to focus on sales and growing their new business. Prepayment levels can be 100% if required. The additional services include invoicing, payroll and credit control. As a service a full back office solution can be more expensive than invoice discounting or factoring but the benefits provided by the additional services can outweigh these additional costs.
As a new start recruitment business you will have no shortage of options available to you. The key is to understand each option so you can make an informed decision. It is also imperative that any facility is structured in a manner that ensures enough cash is generated to meet your ongoing requirements.
I am often amazed at how much disbursements cost factoring clients over and above the ‘headline’ charges. It is not uncommon for some clients to be paying more in disbursement charges than they do in service fee and discounting fee combined.
I was with a client yesterday where this was the case. When I spoke to them about the fees they were very upset about the ‘games’ the factoring company concerned were playing.
The client advised that theyw ould request a payment by BACS on a monday so they would have money by the end of the week. This is good forward planning. When Thursday or Friday arrived no money would materialise. An urgent call would be made to the factoring company and they would agree to do a same day transfer but would charge £40 + VAT.
The client had also been hit by 2 bad debts totalling £37,000. The debt is not collectable and the funding was removed from the client as soon as they realised the situation. However, the invoices have been left on the factors system and simply sit in the end column. Maybe just an admi arror but one that the lender charges 1% of the unapproved debt as a ‘refactoring charge’.
To brighten up my day the client showed me correspondance between them and the client manager. The client would send a simple one line question and would receive back an essay in response that while expansive did not really answer the question.
We will be looking to move the client to a new lender. The charges will be fully explained and we will ensure there is an open and honest communication channel between the lender and the client.
When you set up a facility it is important that you consider the all the potential costs that you may incur. Beyond the headline rates of service fee and discounting fee you may have a raft of additional charges that may not be obvious. It is best to obtain expert advise so that you can make an informed decision.
Trade finance is a great product for importers of goods to the UK. When combined with an invoice factoring facility trade finance can help to finance the whole trade cycle. This means finance can be provided right the way from the confirmed order from your customer right the way through to your customer settling the invoice.
This means that you can accept large orders from larger customers safe in the knowledge that you can pay the supplier and meet your customers requirements.
If you ae an importer of goods and you are looking for a working capital solution then a combination of trade finance and invoice factoring could be just the thing.