Recruitment Finance Terminology You Must Familiarise Yourself With
Understanding the language of accounting and finance can be challenging, especially if you’re launching a recruitment agency for the first time. In this blog, we’ll highlight essential recruitment finance terminology you should know.
Back-Office Support:
This refers to the non-customer-facing functions within a business, such as accounts and IT services. Although not strictly considered customer support, these functions can streamline business operations and enhance the overall customer experience when effectively executed. You can also outsource your Back-office to external partners.
Invoice Financing:
This is a flexible arrangement where a business essentially “sells” its outstanding invoices to a lender for immediate payment, typically around 75-90% of the total invoice value. A service fee and interest are usually applied until each invoice is settled. The invoices act as collateral for a series of short-term variable secured loans.
Invoice Factoring:
In this invoice finance arrangement, a lender provides funds against each raised invoice, covering the period from the invoice date until it’s settled or for a predetermined duration. The invoice finance company is separately informed about the assigned invoices and handles the debt collection on behalf of the recruitment agency.
Invoice Discounting:
This funding arrangement involves the invoice finance company lending funds against the outstanding debtor book. The agency finances the total amount of the raised invoices and reconciles the funds the invoice finance company received to maintain an up-to-date debtor book. In an invoice discounting arrangement, the recruitment agency actively pursues its clients for payment of the invoices.
Drawdown:
This refers to a request made by a recruitment agency to borrow funds from an invoice finance company. The funds are drawn based on current outstanding invoices and those already paid to the invoice finance provider.
Concentration Limit:
The invoice finance company may impose this restriction to mitigate their exposure to any single debtor on your client list. Ensuring the creditworthiness of your clients is crucial to prevent setting low concentration limits.
In-house Accounting:
This involves accounting and bookkeeping tasks carried out by your own employees.
Outsourced Accounting:
This is a flexible and cost-effective arrangement where an external company handles accounting and bookkeeping on your agency’s behalf.
Contact Simplicity for Expert Finance and Back-Office Support
As the owner of a temporary recruitment agency, maintaining a steady cash flow is vital for the timely payment of your temporary workers, even when your clients haven’t settled their invoices yet. Recruitment finance solutions provide essential funding and payroll support while reducing your workload and expenses. Get in contact with us today to help you with Finance terminology, back-office and financial challeneges.
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