Beating cash flow problems an alternative to banks
A recruitment firm with a staff supply as well as the demand for their services should be growing larger and larger each year, but cash flow constraints often affect growth.
Recruitment companies are too aware of the fact that trying to get clients to pay up promptly can be a drain on your resources. It is not easy bridging the gap between getting paid on time by clients and paying off overhead costs and staff wages, let alone making sure that all these variables coincide so that you are in positive cash flow.
Often recruitment firms hit the cash flow barrier right away due to paying their staff weekly or fortnightly and being paid by their clients on a monthly basis. This leaves their operations starved of cash as they are paying wages with cash that they have not yet received.
The process of borrowing money from banks can be an arduous and lengthy process and in many circumstances loans do not get approved.
Even though there are clear indicators of an economic recovery, there continues to be a downward trend of net bank lending to small and medium sized businesses.
In fact, according to a survey published by Asset Based Finance Association there has been a drop of £1.4billion in the last quarter. Consequently more and more companies are looking at alternative financing options.
Bank overdrafts and loans are not always the ideal solution to help a recruitment company’s cash flow problems. A recruitment firm looking to a bank for an overdraft, could find itself rejected simply due to a lack of security and historical data. So what is the solution?
Solving the cash flow problem
“If a recruitment company needs an immediate injection of cash, and it can’t get funding from the banks, then we would recommend invoice financing,” said Simon Carter, director at Touch Financial. “An invoice finance package advances a company a percentage of an invoice a company has yet to be paid for.
“It means that a company does not have to wait for the customer to cough up the cash, which in the case of a recruitment company can be 30 days or even more. Effectively, this means that the monthly income for a recruitment firm is bought forward a month - income is ahead of the weekly payments of staff. It makes for a nice fit for a recruitment company.”
What is Invoice Finance – Recruitment Factoring?
Invoice Finance – Recruitment Factoring is a highly flexible solution. It is a way of generating cash that uses outstanding invoices as the principal asset against which money can be raised, providing companies with up to 95% of the value of invoices within 24 hours of their creation. it usually comes in two different forms known as factoring and invoice discounting.
Factoring - if a company does not already have an established credit control facility then the lender can take charge of receiving and chasing payments from customers. It is suited to companies with an annual turnover of more than £35,000.
Invoice discounting – Similar to a factoring facility, but with one major difference – the company is in charge of the credit control facility. It is suited to companies with an established credit collection administration process and an annual turnover of more than £150,000.
And the benefits of Recruitment Factoring are&hellip&hellip
• Immediate Cash Injection – can be as much as four times the cash a company would get from a bank loan or an overdraft facility which can be used to cover operating costs and wages, or even to expand the business.
• Less Red Tape – does not require as much red tape and historical data compared to applications for more traditional forms of finance, like bank loans and overdrafts. It is funded against the sales ledger.
• Financial planning – gives companies an idea when they will be paid (rather than waiting for payment from a client).