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What are the reasons you may be turned down from invoice finance?

One of the most common ways of financing a startup recruitment agency is through the use of invoice finance as a way of bridging the funding gap for contract placements. The recruitment market as a whole, and specifically payments relating to contractors, is considered a low risk funding option as each invoice will have a signed timesheet attached which means that each invoice should be practically guaranteed to be paid. What this means is that most invoice finance companies will offer you 80 to 90% of the invoice value as it offers little risk to themselves. Invoice financing is almost unique to the recruitment industry, and is a great way for new start up agencies to get funding based on their potential client list and projected turnover.

However, if you have thought about invoice finance, applied for it and been refused, what are some of the reasons why you might not be able to get funding for your start up recruitment agency:

 

Your Contract Turnover is less than £500k

 

If you are just starting out and your projected contract turnover is less than £500k then most invoice finance providers will not offer finance recruitment agencies. This is due to the fact that this considered a small amount of funding, and so the time it would take to sort this arrangement out would not be a worthwhile use of time and the fees charged would probably not cover the minimum fees required on the arrangement.

 

Majority of Your Debt is with One Client

 

Invoice factoring providers will get a little nervous when the majority of your outstanding debt is sitting with one or two main clients, as this means that there is a risk of your agency going bust if your client goes bust or decides not to work with you anymore. You may find that an invoice finance provider will build some terms and conditions into their agreement with you concerning a reduction in the payment percentage or a cap on the funding limit for the client.

 

Lack of Recruitment Experience

 

As part of a normal due diligence process, the invoice finance provider will look at how much recruitment experience you (as the director of the company) has. If you have not worked as a recruiter in the past, or don’t have what they would consider sufficient experience in the recruitment sector, then they may feel that you are unlikely to meet your projected turnover figures or that you don’t fully understand everything needed to comply.

 

Your Contractors are placed in Risky Industries

 

Your invoice finance company may have turned you down as they feel that your contractors are placed in industries that they consider to be risky, such as construction and retail.

 

A lot of Overseas Debt

 

If a lot of your debt is with companies that are based outside of the UK, then this may be an issue for your recruitment factoring company. They may not be able to provide finance on international debtors or currency either which can cause restrictions on funding.

 

You have a Bad Credit Rating

 

The majority of the decision to provide you with invoice finance for your recruitment agency is based on your clients credit rating, they will also want to make sure that all the directors of your company have a good credit rating as well – with no CCJs or banned directorships.

 

Pay when Paid Contracts

 

Pay when paid contracts are seen as high risk for most invoice finance companies as the debt that is funded can’t be pursued by them as the client will say that they haven’t been paid by the end client. This means that this type of contract and similar consultancy agreements may be excluded from the funding unless the provider is happy with the process and believes that the client has a good credit rating.

Finance4Recruitment is one of the leading recruitment factoring companies in the UK and we will take the time to make sure that the finance you receive is suitable for your needs. If your agency is identified as not being eligible for an invoice finance arrangement then we will do our best to find an alternative funding method for you.

For more information on how Finance4Recruitment can help you with invoice finance and other solutions, please contact our office today on 0161 408 5303 or by email at enquiries@finance4recruitment.com.

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