Alastair Logan, Regional Director of Ultimate Finance Group, offers a solution to stop you running out of money when placing non-permanent staff.
I realise it sounds a paradox but the more successful you are the more your company could be placed in jeopardy. In fact you may get to the stage where you have to turn down business as you can’t afford to take it on.
The area of recruitment I am referring to in particular is interim and contract work.
A client of ours, Etherington Smith, which is an IS strategy and architecture specialist recruitment firm based near Heathrow, faced such problems.
Having set up the firm in May last year, they were soon providing personnel to global blue chip companies.
The contractors they place can command up to £1250 per day, which equates to £25k per month. At the end of the month the contractor invoices Etherington Smith and they then invoice the client.
It all seems straightforward but the problem arises because the contractor has to be paid their ‘salary’ on time, whereas the client can take up to 90 days to pay. Based on placing just four contractors that is a whopping £100k per month the company will be out of pocket until the invoice finally gets paid.
Naturally, with any new business a bank can be reluctant to lend, unless of course the loan is fully guaranteed. But however confident people are about their business there is always reluctance, or perhaps fear, about putting houses on the line.
A solution to the problem is invoice finance, which basically means the client’s invoice gets paid a few days after it is raised.
Naturally there are a few checks that need to be carried out first. Etherington Smith’s clients had to be credit worthy and limits set on how much they can ‘borrow’ against the invoice, according to the results.
Once approved the process is simple, as the whole payment process is taken care of; from receiving and paying the contractor’s invoice, through to invoicing Etherington Smith’s client and chasing it up for payment. In other words a full payroll and credit control service.
As well as ensuring the cash keeps flowing, the turnover appears in Etherington Smith’s accounts to help increase the value of the company as its success grows. We then deduct the interest on the outstanding borrowing as well as the charges for the facility.
A key benefit, apart from taking away the pressure of having to raise invoices and get the money in, is that they can concentrate on what they are good at – placing high calibre candidates!
For further information call Alastair Logan on 07912 248 706 or email alogan@ultimatefinance.co.uk
