What is recruitment finance?

Recruitment finance funds contractor and temp payroll before your clients have paid you. The lender advances against invoices raised on approved timesheets, usually within a day, so wages go out on time.

It is a sector-specific form of invoice finance, shaped around how recruitment actually bills. You will also see it called payroll finance, temp funding, contractor funding or recruitment factoring.

The problem it solves

Contractors expect paying weekly. Clients pay on 30 or 60 day terms. Every week, money goes out before any comes in.

An agency with 20 contractors out and clients on 45 day terms is funding roughly six weeks of wages from its own pocket before the first invoice settles.

Why growth makes it worse

This is the part that catches agency owners out.

For a contract desk, winning work is what causes the cash flow problem. Every new placement consumes cash for weeks before it generates any. Ten new contractors means ten more weekly payrolls funded months ahead of payment.

That is why a big contract win can put more strain on an agency than losing one, and why agencies moving from permanent into contract so often underestimate the working capital required. Permanent bills on placement. Contract funds payroll continuously.

Why a loan or overdraft fits badly

Both are capped at a fixed limit set before you won the work. Recruitment finance scales with your contract book instead, so the funding grows as the desk grows rather than constraining it at exactly the moment you need more.

Two things to decide deliberately

Disclosed or confidential. Disclosed facilities involve the lender in collections, so clients know. Confidential facilities keep it private and you handle collections yourself, though they usually need a more established agency.

Recourse or non-recourse. Under a recourse facility, the advance is recovered from you if a client fails to pay. Non-recourse, or bad debt protection added, shifts some of that risk for a fee. Given a single client failure can wipe out months of margin, this is worth choosing rather than defaulting into.

Where it does not fit

A purely permanent desk billing on placement has a much smaller funding need, and is usually better served by a revolving credit facility. Agencies running both typically fund the contract side only.