Factoring and back office services for the recruitment industry

Recruitment has long been one of the largest factoring industry sectors with the business being tailor made for factoring as invariably the recruitment companies have no other assets except debtors. Banks were unable to fund fast growing recruitment companies satisfactorily even before the Brumark ruling in 2001 but since then they haven't even bothered to try and a host of alternative finance companies have sprung up to fill this gap.

One of the interesting developments in recent years is the added value that some factoring companies are offering to the recruitment industry in the form of a complete payroll and back office service in addition to the normal funding available by factoring.

There are other companies that offer a back office payroll service and some of them even tack on a rudimentary factoring type facility but these can be a little risky as invariably they obtain the funding by factoring their own debts and if they have any sort of problems of their own with their factor this will trickle down the line.

Apart from seeming pointless and risky using a company to handle both the backroom and funding aspects of the business if that same company are just outsourcing the funding to someone else, it is also the most expensive option available with typically charges of 5% or 6% of turnover being levied.

It would seem more logical as well as cheaper to either factor the invoices directly with a factoring company and outsource the payroll side to a specialist bureau or to handle the payroll in house (or use the services of your accountant) as either of these methods should be cheaper.

Typical costs for a recruitment company turning over £750,000 would be as follows and show how expensive the “All in one” route can be :-

All in One Bureau Fee at 5%					£37,500
Factoring Commission at 1%			£7,500
Factoring Interest at 7.5% pa			£6,550
Specialist Payroll Bureau at 1%			£7,500		£21,550
			Saving		£15,950

 

Why not contact us for an informal chat on which factoring companies can offer what service to recruitment consultants and the recruitment industry generally. Our services are free of charge and come with no obligation at all.

Whilst we feel that factoring, with or without a payroll back office service is the way forward for most recruitment companies it comes with the same caveat as with all other types of industry as we do have some real concerns with the ways that some factoring companies operate which is why we have set out details of the possible pitfalls in the following pages including such matters as "Why some factors appoint Administrators or Receivers to their clients" and "How some factors abuse the Minimum Annual Fee" to "Why some factors offer such a poor service."

Please see next page for details on selecting the factoring company