Illustration by: Mark Conlan

Despite a lot of entrepreneurs disliking bankers, a lot of individuals are more likely to put up with high fees and poor service, then change invoice factoring suppliers due to convenience.

Recruitment is a highly competitive market, agencies need to streamline every aspect of their operation to remain profitable and competitive. Invoice factoring is presumably the most important, and misconstrued, growth enabler for agencies placing contractors.

What does unhealthy invoice factoring look like?

The wrong lending product will seriously stunt an agencies chance of scaling. We’re talking six-figure sums being removed from the bottom line, and endless hours of labour wrapped up in admin that’s better spent on income generating activities.

We all know that turnover is used as a yard stick for success, profit is the single source of truth, and working capital is the key driver behind a healthy agency

– but why is cash flow so vital to agencies as they start to scale up?

Recruiters need to bridge payment gaps between paying contractors weekly or monthly and receiving payments from customers 30 to 90 days later. It’s a typical cash gap that sits on average at 56.5 days in Australia.

Traditional invoice factoring typical locks you down with lengthy contract terms, heavy monthly fees and exit costs that prolongs and forces you to pay for funding even when you don’t require it.

A secret financing burden and additional hidden cost to recruiters is the heavy back office administration that comes with outdated factoring companies. Having to submit paperwork, hand over information, reconcile payments and double entry everything can mean another staff member is tied up, costing you a salary.

Why would you agree to a conditional relationship?

You might only need to fund certain invoices or customers however, many factoring providers will force you to finance your entire debtor book.

Maybe you’ve got customers you wish to keep the factoring anonymous, or would like to know you can use your own funds sometimes, instead of financing all of your debts.

They charge a lot of a varied fees

Scattering the costs over lots of little fees can confuse the mind, appearing to be cheaper.

These are some of the charges to look out for:

• Setup fees
• Re-factoring prices (or chargebacks)
• Fees on late payments or 90+ day debts
• Credit checking prices
• Auditing fees
• Renewal charges
• Exit fees
• Minimum monthly fees
• Automatic roll over fees
• Limit increase fees

Factoring companies use outdated systems themselves and it’s to be expected that they need to cover their own costs. Most of the above items can be removed if you decide to choose a modern option that ties in with your accounting software.

They’re very sticky

With long written agreement tie-ins, long notice periods and weighty exit fees, ancient financiers can get their hooks into your agency if you don’t understand the terms.

Ask yourself why they they need to lock recruiters into a prolonged contract if they’re providing the most effective financing service to growing agencies?

So, what’s the alternative?

If you would like to unlock your growth and maximise profits, you already know the answer… place a hell of lot more contractors.

To do this you need to find a financier that doesn’t operate like the “old school” factoring suppliers and can deliver cost effect cash flow, without any of the time consuming costs that plague traditional factoring companies.

Lots of turnover looks nice however, it won’t keep your agency afloat if your profits are being slowly eroded from underneath you. Resting your agency’s future on a lending tool that gives a conditional quantity of money flow, or constricting back-office administration, can stunt your agency’s growth.

We’re here to provide recruitment agencies with invoice finance and software that seamlessly integrated with your back office.

See what the alternatives all about.

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We regularly share our thoughts on trade finance, lending, company culture, product strategy and design.

Stak works with clients that sell to some of the largest buyers in Australia & overseas.