Temporary recruitment agencies across the UK have to fill the short term funding gap between payment of their temporary staff and the payment of client invoices. The period of time could range from a few weeks to a few months, coupled with a large workforce the total debtors value can be a significant strain on a business.
Payroll funding or invoice factoring is a popular solution, as the recruitment agencies can secure short term funding secured by the value of the asset, in this case the invoice. The agency can draw down a percentage of the invoice value to pay their staff, with the balance available once the invoice has been paid by the client. Of course, the payroll funder of factoring company will deduct a few for this service.
So what risks are associated with asset based lending?
If your client doesn’t pay the invoice, you will need to repay the loan in full, plus the interest.
If you have a poor credit rating or you are a new start up, most lenders will require a personal guarantee, so you a personally liable for any debt if your business folds.
Payroll funders and factoring companies have a complicated fee structure, this can result in unexpected and excessive costs which will erode your margins.
Be aware that lenders responsible for chasing your debt may not treat your clients in the same manner that you would, this may result in repeat business.
In summary, payroll funding and factoring is an important and necessary tool for employment businesses, however there are risks to be considered, and can sometimes be avoided. TempAuction is an independent, transparent and competitive marketplace for the procurement of temporary workers from our network of rated and reviewed recruiters. TempAuction offers recruitment agencies a risk free alternative to asset based lending, by offering a ‘you get paid, even if we don’t’ service with no credit checks or personal guarantees.