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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 organisations with ambitious recruitment plans and everything in between. 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 operate 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.

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