In this evolving era of recruitment industry, starting a new agency is an exciting game, though it can be daunting sometimes!
Especially when that first weekly contractor payroll run is due and your customer is yet to pay their first invoice that isn’t even due for another 14 days! This means that there’s another two weeks of payroll on top of this first week to be paid before the cash starts to come in. The initial excitement of landing that first contractor placement is soon replaced by stress and anxiety of wondering where the cash is going to come from so that the critical weekly pay run to the contractors can be met.
Ideally the business has started with at least some personal funds being put into the business however if a large volume or high value temp contractor job is won, the initial start-up cash required can be significant to meet just that first week’s payroll.
If personal money has not been injected at the start, then either an overdraft has been made available to the business or other loan has been provided. This is unlikely given most banks will require a certain time trading and/or some form of property as security which, if available, then ties up the Director’s personal assets with the business.
The appropriate alternative for new start recruitment agencies is Invoice Finance or Payroll Funding where an advance is made against the unpaid customer invoice so that contractor weekly payroll can be met.
There are a range of Invoice Finance providers and choosing one is a topic for another day.
Start-up businesses have other policies and procedures to consider. They must ensure there are no issues with the credit worthiness of new customers – are they a known large corporate with a solid credit history, or a little-known company that has been trading a short time and already has a string of credit defaults. If using Invoice Finance, the finance provider assists with credit checks and assessment that can highlight any potential issues.
At the beginning it’s important that the basics are right.
- Your terms of business need to be solid, outlining your agreed payment terms, your rates and any penalties you may choose to apply if payment of invoices are late.
- You need to be compliant with the recent changes to the Personal Property Securities Act which is critical.
- Invoices should include not only your own but the correct customer entity and ABN details – if these aren’t accurate and you need to chase a debt owed legally, you can immediately fall at the first hurdle if you haven’t been invoicing the correct entity for your services. Getting the right entity details for your business and your client is surprisingly an issue in the industry.
APositive Workforce Finance Consultant
After finishing University in the UK, Marc has built up twenty years of experience delivering finance solutions for growing businesses. Having worked with clients from start up to those turning over hundreds of millions, Marc particularly enjoys seeing the results that customised finance facilities deliver for start-up and SME businesses.
Rod is a 35-year veteran of Australian and international IT and corporate advisory organisations. His executive-level credentials traverse many segments of the staffing and recruitment industry and include corporate advisory assignments, mergers and acquisitions mandates, and C-level advisory to multinational and other public and private organizations. Located in Perth, Rod founded HHMC to provide local industry acumen and global knowledge to Asia Pacific recruitment agencies. HHMC’s innovative business strategies and well-grounded guidance result in clients realising their personal and corporate goals.