Invoice Finance or Traditional Factoring?

Invoice Finance or Traditional Factoring – which is best for your business?

If you are in the process of starting your own recruitment business specialising in temporary staff you will most likely be considering your options for financial support. Naturally the first thing most people consider at this point is, how can I ensure that I have adequate financial provisions to ensure I can pay my temps?

A successful temporary recruitment business will quickly accrue large amounts of debt as you will need to pay your temps on a weekly basis whilst waiting anything up to (and in some cases exceeding) 12 weeks for payment from your client.

Picture the scenario. You have 10 temps working on a weekly basis. You invoice your client £10,000 a week for their services and pay the temps a total of £8,000 a week. Even if your client keeps to the standard requirements of 30 day payment terms your temps are going to have been out at work for at least 4 weeks before the first invoice is paid. You’ve been paying them £8,000 a combined per week during this time so you will be £32,000 in debt within your first month.

With this in mind most recruitment business owners will look to obtain financial backing from either a bank or an establishment finance provider. This finance can come in two formats, traditional factoring or invoice finance. So what do you get with either format and more importantly, which is best suited to your business?

Traditional Factoring is a method of providing funding to a recruitment business by releasing a proportion of the total value of the invoice to the agency, typically in the region of 85%. These funds will be made available upon the provision of the invoice by the agency, at which point they will then have access to the funds in an account provided by the bank or financial institution. The agency can then use these funds to pay their temporary workers, with the remainder of the invoice balance (15%) being made available once the invoice has been paid.

In this method the agency will typically need to raise their own invoices, cover a portion if not all of their own credit control and directly handle the payroll requirements. Typically speaking bad debt protection will not be included within this method (or if so for an additional cost) so it will need to be sourced separately by the agency, usually to great cost.

Invoice Finance provides the finance to the agency via a method that is rather more beneficial, in terms of both cash flow and administration, and is how Quba provide financial support to our agency partners. Quba provide electronic timesheets services to our agency partners to obtain confirmation of the temporary workers’ hours, will raise an invoice based on these timesheets, and will then release 100% of that invoice to the workers (via payroll) and the agency (via margin payment). No waiting for invoices to be paid. No hassle.

Quba will then handle all credit control functions for the agency and will cover 90% of all outstanding debt (within credit limits) with our bad debt protection policy, significantly reducing the exposure on your business. You will be receiving your profit each week and Quba will be chasing your outstanding invoices, leaving you to get on with what you do best.

In addition Quba’s direct in house experience as Recruiters means our back office is specifically tailored for the niche requirements of the temporary recruitment market. No additional costs. No overbearing credit controllers. No hassle.

If you would like an informal but confidential chat on how this service can be of benefit to you please call me any time on 07795 572916 or email me at mike@quba.solutions.