Factoring for recruitment companies in the construction industry

Factoring for recruitment companies has been the biggest growth sector in the factoring marketplace as it is tailor made for factoring or invoice discounting with the recruitment companies generally have no other assets apart from the outstanding debts due to them. Banks have long ago admitted to having no appetite for funding this type of business on a traditional overdraft basis and with factoring proving to be more suitable for fast growing recruitment companies most now look straight to that option for funding their working capital requirements anyway.

Unfortunately recruitment for the construction industry has been out on a limb due to the HMRC regulations relating to CIS certificates which effectively ruled out any company that only had a CIS4 or CIS6 certificate from factoring as the factors wouldn’t advance enough to pay the wages due to the requirement to withhold 18% on top of their normal security margin of 15% of invoice value.

 Luckily the changes to the scheme in 2007 have done away with these anomalies and whilst there is still more red tape involved in setting up and running a recruitment company in the construction industry than any other type of recruitment there are no longer the barriers in place that will effectively rule out factoring.

Under the new scheme recruitment companies can apply to HMRC to be paid gross by and settle their own tax affairs. However, to gain authorisation to be paid gross, they must pass three tests - the business, turnover and compliance tests.

Simply put the companies must be able to show that

1) they are operating in the construction industry

2) they have a minimum turnover (which is set at a fairly low level) and

3) that they have fulfilled all their tax, National Insurance and other obligations for the previous 12 months.

There are companies out there that purport to offer a complete package encompassing payroll and finance to recruitment companies in this sector but we rarely recommend this approach as the majority of these companies raise their own funding by refactoring their clients’ invoices which we find potentially unhealthy. Additionally there are murmurings of discontent on the grapevine about the poor service levels of one of the major players in this sector anyway.

Our preferred approach is to cut out the middleman and deal directly with a “proper” factoring company but that in itself can bring problems as it is an unfortunate fact of life that many factoring companies do not deliver the fast, flexible and personal service that they promise.

 Fortunately as the UK's leading specialist factoring broker we know which ones actually deliver and we refuse to deal with the rest so why not contact us for an informal chat as our services are free of charge and come with no obligation at all