Whether you’re starting, scaling or already have an established recruitment or labour hire business, understanding and finding the right finance solution can be an unnecessarily complex decision.
With the right guidance and asking the right questions, this process can be demystified.
Whatever stage you are on your journey, we hope this Q&A helps steer you down the right path….
What finance options are there for recruitment & labour hire businesses?
If you are starting up a recruitment or labour hire business, there are 2 types of funding requirements
- Start up capital – Laptop, phone, software, and other set up costs.
- Cash flow.
Bootstrapping is quite common for those starting with perm placements but labour hire and contracting come with the added burden of having to fund a growing payroll.
Hiring businesses at all stages ( start-up, growth, mature ) mostly trade on a negative cash cycle, where payroll is paid before the customers pay their invoices, so funding is needed to cover that gap. The most common finance options to help here are:
- Owner’s cash or loans from family/friends.
- Bank overdraft.
- Invoice Finance or Payroll Funding.
What are some of the key considerations when deciding on which option is best suited?
- Weighting of Perm v. Temp and the implication of this on cash flow- Can you use perm fees to help cover payroll for example?
- How much do I need? – It helps to forecast and budget based on projected sales levels and customer payment terms. A simple calculation would be estimating your weekly payroll and multiplying that by how long you think your customers will take to pay your invoices.
- What security am I willing to put up – e.g. my home or other property? Or, do I want to keep my personal assets separate and safe?
How does Payroll Funding differ from invoice finance?
Invoice finance is a generic standalone product where funding is created by advancing cash against invoices raised for services provided. Payroll funding is based on a similar concept of funding against invoices but is integrated into the operational processes and systems of the hiring business.
How does it work once the facility is set up – is it like a line of credit?
Payroll finance can run in various forms depending on the client’s systems, processes and funding needs. It can also depend on whether the business manages their payroll in-house or chooses to outsource it. It can run as a line of credit, a come and go facility to access cash only when you need it, or, you can automate the funding to ensure cash is in your bank on a certain day each week in time to pay payroll.
What about perm recruitment- what are the options for funding?
Similarly, you can start out with your own cash, credit cards, fintech loans and overdrafts. They all come with varying costs and relative funding limits.For a low or no cost option to get your invoices paid quicker, to help with cash flow, you can consider APay – a ‘Recruit Now Pay Later’ instalment option. If you get your customers to take up an instalment option for your perm fees, you can get your invoice paid to you in full upfront while the customer pays it off.
These types of arrangements ensure that your customers’ cash flow needs don’t impact yours.