Find out how savvy recruitment agencies are getting ahead
If you’re a recruiter looking to grow your temp or contracting business, chances are you have already considered what finance options are available to you.
The thing is, many business owners in the past have viewed external finance – or debt – as a last resort. But, actually, not all debt is bad, and if you use debt or payroll funding to finance business growth then it can be a positive strategy.
For example, if your gross margin is 15 per cent and the cost of funding is two per cent, then all new sales will grow your bottom line. Would you rather 15 per cent of $1 million in sales or 13 per cent of $5 million in sales? If finance can help you grow your gross profit from $150,000 to $650,000, say, then it should actually be considered your first resort!
Put simply, when it comes to finance options available to recruiters there are four main avenues:
- Payroll funding,
- Bank overdraft,
- Equity (family/ friends); and
- Factoring / debtor finance.
We’ve found the majority of small business owners want to know the difference between payroll funding and the traditional bank overdraft. So, here’s what you ought to know.
What is payroll funding?
Payroll funding is based on the concept of debtor finance, but tailored to the recruitment industry. To explain, debtor finance is a generic finance product that works the same for all industries, which means recruiters are looked at similarly as other users of debtor finance such as transport companies and printers.
Payroll funding, however, can be tailored to suit recruiters’ needs. For example, payroll funding plugs the gap recruiters or labour hire companies often experience between when the end customer pays, and when your payroll is due. This is where a finance provider like APositive advances the payroll amount or anywhere up to 100 per cent of your invoice value if you need early access to your margin too.
Remember to look for a payroll funding provider who integrates with your processes and systems so that, regardless of whether you outsource your payroll or manage it in-house, the line of funding slots in seamlessly. Plus, be sure the provider offers a simple fee structure with no set up costs or lock-in contracts so that you know your fees upfront.
What is an overdraft?
Business overdraft is a line of credit that covers seasonal or unexpected expenses – or those times when your bank account drops below zero temporarily.
The problem for recruitment businesses is that it’s difficult to gain access to any reasonably sized overdraft due to the strict credit criteria set by the banks. For example, you must have traded profitably for years, have a well spread customer base and property security for facilities generally higher than $50,000. However, if you meet these requirements (now and in the future) and the funding limit will sufficiently meet your current needs and accommodate your plans for growth then, yes, it can be the cheapest funding option.
How APositive can help?
APositive specialises in SME recruitment and labour hire businesses. This means we understand your cash flow needs and have designed workforce finance solutions specifically to suit your business model. We will not squeeze your business into a generic offering that caters for all industries. Plus, our services – payroll funding, invoice finance and back office solutions – are tailored to your individual business needs. Not only do we provide access to the funding you need to cover payroll and more, but we also streamline the process to make it easy. That’s why we also offer to optimise your finance systems, so that your money is geared towards one thing – growing your business.
Find out more about Payroll Funding in this article: 5 Payroll Funding Myths Busted.