Your Guide to Recruitment Finance

March 5, 2024
Jamie Davies

Recruitment finance allows businesses to protect their cashflow while operating in the fast-moving world of temporary and permanent staffing.

The most popular form of recruitment finance is where the funding provider makes immediate payment against invoices being raised on your clients. This immediately injects cash into your business, even if your client pays on credit terms - say 30 days later.

This is particularly valuable where your business is providing temporary staff, who remain on your payroll and may require paying every week. This invoice finance arrangement allows you to keep up payments while waiting for your clients to settle their invoices.

The benefits of invoice finance for recruiters include:

  • Reduces time and stress of cashflow management.
  • Gives you confidence to grow your business.
  • Often has the option to protect against customer insolvency.

Cashflow can be a major headache for recruitment businesses, when there’s uncertainty over when clients will pay. Invoice finance helps to take the pressure off by ensuring the cash is in the bank almost as soon as the invoice is issued. 

The amount advanced by the funder is typically between 90-95% of the invoice value.

Why recruitment businesses can have cashflow problems

There are two main reasons why recruitment firms often run into cashflow issues:

  • They do most of their work before invoicing clients.
  • Temporary staff need paying on time, often weekly.

The nature of recruitment means that much of the work is completed before the client is invoiced. This creates a cashflow gap. Your business knows that the money is due, and it may even have been invoiced, but as many clients have credit terms, there’s a delay before you’re paid.

During that time you may be required to run your own payroll and settle other obligations. Without access to substantial working capital, this can quickly become a problem.

It can be made worse when you’re also responsible for paying temporary staff, who often expect to be paid weekly. You can’t afford not to meet these obligations, otherwise you’d quickly lose them, and your clients.

But again, there’s a delay between you paying your temporary staff and being reimbursed by your clients. 

Recruiters often use invoice finance to plug this gap. It’s a convenient, cost-effective and flexible way to ensure lack of funds doesn’t damage your business.

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How recruitment finance works

Here’s a typical example of how invoice finance works for a recruitment agency:

  • The agency performs work for the client.
  • The agency invoices the client on 30-day terms.
  • The funding provider immediately pays 95% of the invoice value.
  • After 30 days, the client pays their invoice in full.
  • The funding provider settles the balance of the invoice, minus their charges.

The details will vary, depending on the specific agreement between the funding provider and the recruitment business. These details can include:

  • The fees and interest rate charged by the provider.
  • The exact amount of the invoice paid in advance (typically 90-95%).
  • Who is responsible for credit control.
  • How rebates are handled (typically for permanent placements).

These specifics are agreed in advance as part of the contract between your business and the funding provider.

The benefits of using recruitment finance specialists

Invoice finance - also known as invoice discounting or invoice factoring - is used by many other forms of business, not just recruitment agencies.

However, when you are considering invoice finance, you should look to work with a provider with extensive experience of the recruitment sector. They will be familiar with the practices and issues associated with recruitment, and with the unique factors faced by businesses like yours.

Their recruitment finance product will be designed to match the needs of recruitment firms. Whatever situation you face, they will have seen it before and helped businesses to overcome it.

Using finance brokers to find the right recruitment finance

It’s easy to become overwhelmed by the huge number of funding providers out there, each with their own finance product. 

How can you be sure of finding the solution that’s best suited to your needs, while also being cost-effective?

That’s the role of finance brokers, such as our team at JD Capital Finance. We spend every working day talking to finance providers, and helping to match them with clients.

Our deep knowledge of the funding options available and the current trends in the marketplace mean we’re trusted advisors to our many clients. They want finance in order to run their businesses well - it’s our business to help them achieve that. 

The benefits of working with us to find your ideal recruitment finance solution include:

  • A dedicated finance consultant, who stays with you throughout the process.
  • You can ask all the questions you want.
  • We’re committed to helping businesses grow.

If you think invoice finance might be right for your recruitment business, get in touch with us today.

Jamie Davies
Managing Director

As a founder of multiple businesses, Jamie believes that mindset, discipline and ambition are key drivers for success, both for his businesses and for his clients. 

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Disclaimer: Spark Finance Ltd (Registered office - 18 John Stow House, London, England, EC3A 7JB, Registered Number 10128297) helps UK firms access business finance. Spark is a credit broker, not a lender. Any quotes provided are for information purposes only and subject to status and separate lender terms and conditions. Applicants must be aged 18 and over.  Guarantees and Indemnities may be required.  Spark Finance may receive commission from lenders  which may vary depending on the lender, product, or other permissible factors. The nature of any commission model will be confirmed to you before you proceed.

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