In terms of what tt lady has said I couldn't agree more - it is factually correct. However, banks struggle to provide overdrafts to customers where their largest asset is their debtor book. This is because of 2 test cases - 1. Brumark and 2. Spectrum Plus. Without going into long detail it means you will be channelled down the invoice finance route.

In terms of giving a percentage of your income yes this is true but it is fairly nominal. If for example a factor gives you an 85% prepayment they do not pocket the other 15%. The 15% is given back when the end customer pays less the factoring charges.

For example a typical charge for an invoice discounting facility for a company with £1 +VAT of turnover would be 0.8% on each invoice.

I may be splitting hairs and apologies if that is the case however I thought some further detail may be useful.

It is important to choose the right provider as in many instances you are tied into a contract which can be as long as 18 months. Different lenders have different criteria and capabilities. It is important to deal with a lender that genuinely wants your business. It is worth obtaining factoring quotes from several lenders. This ensures you can get the right deal at the right price.

As soon as you get a factoring company involved you immediately lose a % of your income - can your business model afford that in the longer term ? A short term overdraft might actually work out cheaper in the long run

Before going down that route you need to make sure you've got effective credit management procedures in place - statement after 30 days, letter 7 days after that followed by phone calls asking for payment and then letters threatening legal proceedings. If you haven't got the time then have you thought about employing a temp for a day or even half a day to do the ringing round ? If your business is new you might not have experience at chasing debts - it can be a stressful process and you need to devote some time to it but it can be done.

The other obvious option is to delay paying your suppliers (never pay before the end of their credit period and if in real difficulty delay until they ring up chasing or send a really stroppy letter) and also to take as little money out of the business yourself as possible until the cashflow has improved. I know this doesn't help other businesses out but if it gets you through a short term problem then so be it.

If the majority of your costs can't be deferred (wages and rent) then you probably need to think about the terms you are offering your customers - maybe only offer them 14 days to pay before starting recovery procedures. The idea of charging them interest after a given period of time is also a good one and you could also offer a discount for prompt payment (which over time you could factor into your pricing structure).

Good luck.

Hi Mark,

I run a recruitment business and had similar issues with my cash flow. I contacted a number of companies, including Bibby, Lloyds and Barclays.

I finally contacted a factoring company called Touch Financial and they found me a pretty good deal with a company called Hitachi. They're really helpful and offer a few other products. The key thing for me was that they actually understood the issues I had and recommended a couple of alternatives, which was really useful.

Hope this helps. Sue.

Hi Mark,

Depends if you are contract or permanent recruitment. Contract recruitment factoring usually offer you in the region of 85% of your invoice value whereas perms usually offer 50%. Close invoice finance is one worth trying. Depending on yoru answer to the above, I can advise others.

Thanks

Peter

Have you thought about adding a provision into your T&C's, i.e. payment must be made within X (30, 60, 90 etc) number of days or 5% (or something like that) will be added onto the bill?

Hi,

I recently started a recruitment company and am experiencing some cashflow issues. To cut a long story short I have more money going out than coming in, which is due to the delay in my clients paying their invoices.

Can anyone recommend a factoring provider which they have worked with in the past, or known to be good for recruitment companies.

Any help would be greatly appreciated.

Mark Townsend.