Invoice discounting for recruitment agencies

Recruitment agencies can face a sharp gap between paying temporary workers and collecting client invoices. Invoice discounting may help after an eligible invoice is raised, but it should be assessed against the full payroll cycle, client approvals and actual payment behaviour.

Map the weekly payroll gap

Prepare a week-by-week forecast of worker pay, employer costs, client invoicing and receipts. A monthly profit-and-loss account does not show the timing of every cash payment, so it may not reveal the largest payroll shortfall. Include the period before the first client invoice can be issued and any delay obtaining timesheet approval.

Evidence of the receivable

Agree what the provider needs to accept an invoice: contracts, approved timesheets, rate agreements and confirmation of work completed may all be relevant. Resolve disputes over hours and rates promptly. Funding against a bill that the client has not accepted can create a later availability problem.

Large customers and payroll growth

Winning a large client can increase turnover while concentrating risk. Ask how customer limits affect the expected cash release. If you expand headcount quickly, request a forward-looking limit review rather than assuming the current facility automatically accommodates the payroll increase.

Discounting or a wider service?

Decide whether you only want funding or also need help with payroll administration, billing and collections. Products marketed to recruitment can combine different services. Compare responsibility, cost and integration rather than assuming every recruitment finance package is equivalent to confidential discounting.

A payroll stress test

Imagine a client paying two weeks later than forecast while the agency continues its weekly payroll. Calculate the additional wages and employer costs due, the increased drawings and the effect of invoice-ageing rules. The facility should be assessed against that case before funding a large expansion.

Questions for a specialist provider

• Which contract types and worker arrangements are supported?
• When is an invoice approved for funding?
• Are overseas clients and currencies supported?
• What happens to disputed timesheets and credit notes?
• Is debtor protection available and what does it exclude?

Include finance costs in each contract's margin

Include finance and administration costs in the margin per worker or contract. Financing a larger payroll is only helpful if the underlying work remains profitable after those costs. Use the same expected volume and collection days in every quotation request.