If you're a temp agency, you'll need some cash unless you have considerable means or clients that pay their invoices quickly!
You have employees who are paid weekly and clients that pay invoices in 30 days, 45 days, or even later. Meaning you are always chasing cash to cover the gap. That is why invoice factoring or Recruitment Financing has become an essential and convenient alternative for temp agencies.
It should be a low-cost option with straightforward, transparent pricing that allows you to factor finance costs into your charge rate calculations. And you should be able to view that cost/those expenses weekly in a way that you, as a recruiter, understand instead of becoming lost in a tangle of funder jargon or a sophisticated interface. After all, you're a recruiter, not a banker.
The devil is always in the details, in the agreement, all too frequently surrounded by extreme intricacy or difficult-to-understand jargon.
Whether you're looking for the correct service or the ideal supplier, it should all come down to three primary factors:
- The actual overall cost
- The cost computation and reporting must be transparent.
- How straightforward it is for you to operate (which is really about how much data needs moving where, when and how often)
Every financing contract and its plethora of charges/calculations should be questioned - what expenses are 'hidden,' and why should you be paying that charge?
Charges that must be present:
- A Start-Up Fee - Because the costs for the funder are upfront, it's only reasonable, but it should be restricted to the time required to set up the facility.
- As the name implies, a Service Fee is an expense of delivering the Service.
- Credit Insurance/Bad Debt Protection - because we all need it!
Yet, why should you pay fees for:
- Raising the facility limit demonstrates that you are expanding, which is wonderful news. However, why should you be taxed to expand the facility if the more you grow, the more your backer makes?
- Minimum monthly costs - determine early on if your expected level of invoicing will justify/cover the minimum monthly charge at the agreed Service Fee%. If not, what are you truly paying for in the beginning? Why can't it be a real pay-as-you-go model?
- Yearly review - you're a client and renewing for another year; why should you have to pay? It's similar to insurance companies charging current clients more for coverage than new customers (albeit this is now illegal in the insurance industry!).
You should also consider a handful of potentially 'hidden' costs:
- Discount/Interest Fee - This operates similarly to bank interest. It is a charge depending on the quantity of the money borrowed and the length of time it was borrowed. As a result, the longer a client takes to pay, the more it costs you. But consider this: if you're using an invoice factoring solution that includes Credit Insurance and a Credit Management service, why should you pay more for tardy payments? Do you charge your consumers for your time on a service review or quality check?
- Charges for moving monies to you on the same day banking had progressed from when everything went through the BACS service; is this still a billed expense today?
- Credit limit checks for existing/new clients - surely this is included in the simple service fee?
Simplicity is here to help.
With the assistance of Simplicity's solutions, which offer Complimentary recruiting technology as well as financial and back-office support to recruiters. Recruiters might not only start off but also prosper and grow. Learn how we can help you get started right away. Call 01594 888518 or send an email to sales@simplicityinbusiness.com to speak with one of our experts.
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