The short-term financing gap between paying their temporary employees and paying client invoices is something that temporary recruiting companies all around the UK must bridge. The length of time could be a few weeks to a few months, and when combined with a large workforce, the overall worth of the debtors can put a heavy burden on a company.
The recruiting agency can acquire short-term money secured by the value of the asset, in this case the invoice, through payroll funding or invoice factoring, which is a common solution. The agency may use a portion of the invoice amount to pay its employees, with the remaining funds being available after the client has paid the invoice in full. Naturally, the factoring company’s payroll funder will deduct some for this service.
What dangers then lurk in asset-based lending?
You’ll be required to pay back the loan in full, plus interest, if your client doesn’t pay the invoice.
Most lenders will want a personal guarantee if you have bad credit or are a new firm, making you personally responsible for any debt in the event that your enterprise fails.
The complex fee structures used by payroll funders and factoring providers can lead to unforeseen and unnecessary expenses that will reduce your profits.
Be mindful that the creditors that are pursuing your debt might not treat your customers the way you would; this could lead to recurring business.
In conclusion, payroll funding and factoring are critical and essential tools for employment organizations; nevertheless, there are risks to be aware of and some of them can be mitigated. TempAuction is a reputable network of rated and evaluated recruiters that serves as an independent, competitive marketplace for the hiring of temporary labor. By providing a “you get paid, even if we don’t” service with no credit checks or personal guarantees, TempAuction gives recruitment agencies a risk-free alternative to asset-based finance.