Cashflow is a big issue for recruitment agency businesses

The typical problem with recruitment agencies is cashflow. Especially those that specialise in temporary business. Temps want to be paid the week following the week they worked but you have only just raised the invoice to the client and then you may have to wait for the invoice to be settled (how many weeks will that be !!!). How are you going to fund paying the temps and the PAYE/NI. All agencies will recognize this problem.

There are a number of ways to finance a recruitment agency. Below are the most common ways:

• Factoring - this is where you sell your debt (sales invoices) and the factoring house advance you say 80% of the debt. The balance is settled when the debtor pays. The factor will collect your debts. Factoring does cost and the fees will be more expensive than just a mere overdraft. However it is worth approaching a professional to act for you when seeking this finance since there are many variables to consider and negotiate.


• Invoice discounting - this is very similar to factoring except that you will continue to collect your debts. This typically will not be available until you have had at least a year of successful trading. Again it is worth getting advice from your accountant or a professional before entering this type of arrangement.


• Confidential invoice discount - this is the same as invoice discounting except that the client never knows that you are using this method to fund the business.


• Bank loan - with a structured loan the bank will often require some form of security. If you have no security to offer then a Small Firms Loan Guarantee may be available where no security is required by the bank.


• Overdraft - An overdraft although more flexible can be withdrawn by the bank, for this reason a bank loan may be more preferable.


• Asset finance - you will need to by PC's, servers, CRM software, furniture and more - why not consider asset finance.