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The permanent recruitment sector has historically been neglected by the invoice finance industry. There was a time when the industry would not finance perm recruitment companies.

So why was the perm recruitment industry neglected?

It was neglected because of the perceived risk involved in dealing with invoices that related to permanent placements. With temporary recruitment the rates are agreed, work is completed, timesheets are signed and invoices are raised. If the hours are multiplied by the agreed rates correctly¬†there is very little that can be queried. In comparison, an invoice for a perm placement is raised when the candidate starts work and sometime before they have even started. What happens if the candidate does not show up on the first day? What happens if they walk out after their first week? What happens if the company finds they are not suitable and let’s the candidate go? Typically there are various rebates due depending on when they part company. As such there is no guarantee that invoices raised will be settled in full if at all.

So what has changed?

In the way that permanent recruitment companies operate very little has changed. However, the invoice finance industry has taken a different view point. As an industry the proverbial ‘toe in the water’ was dipped and funding was provided against perm invoices alongside the usual fundingf provided on temp invoices. This allowed insight and experience to be gained as to what the real risk of non payment was. Funding was only provided at 50% prepayment but this was better than nothing. As experience was gained the perceived risk reduced and some lenders became far more comfortable funding permanent recruitment businesses. As such there are now lenders who are happy to finance perm only recruitment companies at 70% prepayment.

It is fair to say that competition within the invoice finance market has also driven up appetite and prepayments and lenders seek new markets to target.

But do permanent recruitment businesses require invoice discounting?

It would be fair to say that in many instances perm recruitment businesses do not require invoice discounting for the day to day running of their business. It can be useful to help smooth cash flow to ensure that salaries and rent can be paid on time but it is not like the temp recruitment model where wages are typically paid weekly and invoices are raised monthly. This temp model screams out for cash where the perm recruitment model is not as cash hungry. It can however be useful to companies that are expanding, opening new offices or perhaps pay incentives to consultants before client invoices are settled. It can also allow permanent recruitment companies to move easily into the temporary recruitment market if their client base can support this.

What should you consider when sourcing a facility?

Structure: Many businesses will buy on price and ignore the structure of the facility. Prepayment level forms part of the structure and as discussed above as a permanent recruitment business you should be targeting prepayment levels of 70%. This however, is applied to eligible debt so it is imperative you understand what qualifies as eligible debt. One area that is important with this type of facility is concentrationb limits. This is the amount of debt a lender will allow with any one customer. This is often overlooked but with the ‘lumpy’ invoicing that can occur within this type of business you may find that all your outstanding¬†invoices at some stage are to one business. If the right concentration limit is not in place your funding could be severely limited.

Costs: cost obviously plays a huge part when deciding what facility is most suitable. This should always come second to structure. When considerring costs it is very important to look beyond the headline rates. You need to request a full list of disbursements to understand what your total costs are going to be over a year. This can differ framatically from lender to lender. Some invoice discounting providers incorporate all services under the service fee, while others will charge over and above the service fee for each service.

This is good news

The fact that funding is available for the permanent recruitment sector is great news. I have spoken to some recruitment companies that sneer at borrowing against perm invoices. I don’t really understand this – if you don’t need it or don’t want it simply don’t use it. Other permanent recruitment business have used invoice discounting facilities to kick start expansion, smooth cash flow and increase profits.

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