For many recruitment agencies, especially those dealing with temporary placements, external funding is indispensable for growth and expansion.

The challenge is to manage the gap between paying contractors and receiving client payments.

Over the years, a diverse array of funding options has emerged from banks, factoring companies, and specialised funding providers such as ourselves.

Given the complexities, it can be challenging for a recruitment agency owner to understand the available options and determine the best fit for their business.

When setting up the right funding arrangement for your agency, it is essential to recognise and avoid the following common restrictions imposed by some funding providers, as they can significantly constrain an agency’s growth potential.

Restriction #1. Dependency on a Limited Client Base

One major limitation is the reluctance of some funding providers to support agencies that derive a significant portion of their income from one or two clients, this is called concentration.

This concentration is viewed as high-risk because the agency’s financial stability hinges on the fortunes of a few clients.

Should a key client reduce their recruitment needs, switch to a competitor, or encounter financial difficulties, the agency’s revenue could suffer dramatically.

Consequently, securing favourable funding can be difficult if the funding provider is concerned about client concentration.

What you can do: Agencies can seek a flexible funding partner, less concerned about client concentrations. 100% recruitment funders like us tend to be less restrictive on concentration, especially in support of start-up businesses.

Restriction #2. Lack of back office expertise and systems

Funding is only one part of the cash flow challenge agencies face. There are associated issues surround payroll management, invoicing, credit control, sales ledger management and reporting, all of which are vital for sustained success and growth.

Support with these tasks plays a big role in ensuring that debt is collected, risk is managed and there is full transparency in financial performance and reporting.

What you can do: Opt for a funding provider offering comprehensive back office support packages. Our Complete Funding solution includes all the back office services you would need for your recruitment agency, such as compliance, pay and bill, credit control, bookkeeping, financial reporting and statutory accounts.

Restriction #3. The Ability to Fund Internationally

If you’re an international recruiter, you should be able to work with one funder for both UK and overseas placements. Even if you don’t currently hire overseas, having a funder who can support international placements leaves you better able to take up these opportunities when they arise.

Secondly, supplying labour internationally comes with its compliance risks that can leave you with liabilities greater than the margins you are making. Also, paying workers internationally e.g. in the U.S will require and Employer Of Record (EOR) to ensure you are compliant with local labour/tax laws.

What you can do: Use a funder that will give you the ability to fund export and find an EOR that can employ in the multiple jurisdictions you seek to do business in. Workwell is in a unique position in the market, where we can fund the majority of international exports as well as provide EOR services in those jurisdictions.

Restriction #4: The Ability To Only Fund What You Need

Most funding arrangements are set up in a way that means all the sales made by the business come under a restrictive debenture that stops you from using another funding provider that also requires you to sign a debenture. This means that if that provider does not meet your needs for a particular supply e.g. international, it can restrict your business.

What you can do: To avoid missing these opportunities, look for a funder who can support ad hoc funding without the need for debenture. We offer a flexible fund-as-you-go model which allows agencies to access the funding they need, when they need it, without signing a debenture or personal guarantee. Fund-As-You-Go enables agencies to trial a new recruitment project on a placement-by-placement basis in 170 countries and comes complete with full bad debt protection.

Restriction #5: Funding Perm

Some funding arrangements or facilities will only fund contract supply and will not fund perm, or will fund perm at a much lower percentage such as 40% or 50%. This is because of higher perceived risk with supply.

What you can do: Use a specialist funder like Workwell who understands the perm sector and therefore helps you manage the inherent risk on collection, insurance and credit risk of a client to fully fund your perm placements.

Funding To Support Your Growth Goals

Effective funding and cash flow management are inseparable elements of a successful recruitment agency.

With the right funding arrangements, including upfront margin payments and robust cash flow support, agencies can concentrate on their core business functions—sourcing and placing candidates—without the constant worry of financial management or back office capability.

Find out more about our funding with back office and Fund-As-You-Go recruitment funding solutions.

Here To Help

Please book an exploratory discussion with Shelagh to get expert advice about the right funding solution for your business.