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During a presentation I was delivering to representatives from the Recruitment industry the topics of Invoice Finance and Invoice Factoring arose. These, and how to secure the best possible deal, were clearly topics of interest to the attendees.
From working with my Recruitment industry clients I am aware of how cash flow can be put under strain due to the lumpy nature of the way permanent placements can land and are subsequently invoiced. There is also the need to ensure all temporary placements are paid on a regular basis. These cash flow pressures are all in addition to the regular overhead costs which must be serviced by the business.
The two solutions to these issues, Invoice Finance and Invoice Factoring, discussed during my presentation, are available to help businesses smooth out their cash flows and enable financial planning.
The main benefit of invoice finance is it enables a business to receive cash immediately. A percentage of an invoice raised (the invoice finance company will set limits on the percentage) can be converted into cash and drawn down. The advantage of this is that interest is only paid on the amount drawn down.
As well as being charged interest on the money drawn down, businesses are often charged a service fee expressed as a percentage of each invoice. In some instances businesses can be charged a fixed monthly fee. The responsibility to ensure the invoice is paid by the customer also still remains with the business making use of the finance facility.
This is where some or the entire sales ledger of a business is handed over to a third party (factoring company). In return for this the business will receive an upfront payment for a percentage of the value of the factored debts. This is in addition to the immediate draw down of cash.
The factoring company will then seek to recover the debts, freeing up management’s time by not having to chase in debts. In some instances credit control doesn’t have to be handled by the factoring company, this can still be done in-house and is referred to as CHOCS (Client Handles Own Collections). Traditionally factoring companies have shied away from the permanent recruitment sector of the industry, but this has changed in recent years.
With a potentially complex range of financial solutions on offer, and the need to ensure Armstrong Watson’s clients are best informed before making decisions in relation to these products, Clive Briggs has recently joined the team. Clive says:
“I am very pleased to have joined the team at Armstrong Watson and working with them to bring all elements of business finance under one roof. Whilst my background has been most recently in the Invoice Finance arena the ability within a firm of this size to wrap advice from other areas of the business such as business planning, restructuring, tax or financial planning, around business finance ultimately brings huge benefits to the client.
The Recruitment sector has always leant itself to funding due to the cash flow requirements of the industry where staff need paying weekly and clients tend to pay on 30-60 day terms, and we are ideally placed to help find the correct funder for each client.
On a wider scale my role within Armstrong Watson will mean clients have one point of contact instead of several. The advice given takes into account the whole of the market alongside strategic implications of different funders for that business. Being able to do this means we can have a greater positive impact. Every business at some point needs finance whether it’s an overdraft, company car, investment in equipment or office space. Our job here is to ensure that they get the best possible source of funding, taking into account all the other elements which are significant strategically, to present the most appropriate solutions.”
I would therefore encourage any business, particularly in the Recruitment sector experiencing cash flow issues, to consider the range of solutions which are available and ensure they seek the correct advice before deciding which solution is for them.
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