What is payroll finance

Payroll finance also known as payroll funding gives recruitment companies the necessary funding to ensure that their contractors are paid on time irrespective of whether the customer has paid or not and this comparatively modern method of funding is one of the reasons behind the proliferation of recruitment companies in the last decade or two.

Recruitment companies tend to have no assets bar the outstanding invoices on the sales ledger and traditionally banks have been unwilling to lend much by way of overdraft against outstanding invoices without the benefit of outside security like a second charge on a house which is why factoring or invoice discounting has been the funding vehicle of choice for recruitment companies as the initial payment of up to 90% of sales invoices is tailor made for recruitment companies that have to pay their contractors / temps on time.

Traditionally the recruiter has had to either handle the payroll themselves or outsource it to their accountant or payroll bureau but in the last twenty years specialist payroll funders have sprung up to fill the void and traditional factoring companies have bolted on a payroll service to their funding packages too.

The different types of recruitment finance and payroll packages on offer are described in full on the factoring for recruitment companies website but to summarize there are four main offerings in order of desirability with the least desirable first.

Payroll funding companies where you have to invoice in their name as they are actually Not recommendedfactoring their / your invoices themselves in order to raise the funding to pass on to you. Not only do you lose some of your identity with this method of finance but you are also at risk if they have a financial problem with their factoring company caused by another of their clients as that could trickle down to yourselves.

Payroll funding companies that don’t re-finance your invoices with a factoring company. Apart from the fact that one of the major players went into Administration causing all sorts of problems for the recruitment companies that were using them some of the high profile players have been known to set low credit limits in order to restrict funding limits and it’s difficult to change to a more suitable funding partner due to the high fees expected for terminating the facility.

Most factoring companies will offer a factoring and payroll package but many of them outsource the payroll to a third party, often without the knowledge of their client and this is obviously less desirable.

Very few factoring companies actually handle the payroll in house but in view this is the most desirable option and it’s often the most cost effective too as any recruitment company turning over more than £500,000 pa shouldn’t be paying more than about 2.5% of turnover for funding and payroll.

Factoring Recruitment Solutions are one of the most experienced specialist brokers around having been established since 1999 so why not give us a call to discuss the various options available for your recruitment company completely without obligation and without any charge at all as all our services are free of charge

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