What hidden costs and why should I pay that…

Guest blog from Phil McDonald, Flo

If you’re a temp agency, you will need some sort of funding support – unless you have very, very deep pockets, or clients that immediately pay their invoices!

You’ve got temps to be paid weekly, clients paying invoices on 30 days, 45 days or even later, meaning that you are always chasing the cash to bridge that gap. That’s why Invoice Factoring or Invoice Discounting becomes such a necessary, and neat, solution for temp agencies.

It should be a cost-effective solution, with simple, transparent pricing that allows you to build the cost of funding into your charge rate calculations. And you should be able to see that cost/ those costs on a weekly basis in a way that you – a recruiter – understands, not lost in a bundle of funder jargon or in a complex portal. You’re a recruiter after all, not a financier.

The devil is always in the detail, in the agreement – too often surrounded by an unnecessary level of complexity or language that isn’t easy to follow.

Really whether it’s the right service for you, the right provider for you, it should all boil down to three simple things:

• The true, total cost
• The transparency of the cost calculation and the reporting of it
• How simple, how easy it is for you to operate (which is really about how much data needs moving where, when and how often)

Every funding contract, and the myriad of charges/ calculations within them should be challenged – what costs are ‘hidden’ and/ or why should you be paying that charge?

Charges that have to be there:

• A Set Up Fee – for the funder the costs are upfront, so it’s only fair, but really should be limited to the time needed to set up the facility
• A Service Fee – as it says, the cost of providing the Service. It should really include any Credit Insurance cost (if agreed) and should be a simple percentage of the value of the invoices being funded
• Credit Insurance/ Bad Debt Protection – because we all need that protection!

But why should you be paying fees for:

• Increasing the facility limit – you’re growing, which is great news. The more you grow the more your funder makes, why should you be charged to increase the facility?
• Minimum monthly fees – check, during the early stages, will your forecast level of invoicing justify/ cover the minimum monthly fee at the agreed Service Fee %? If not, what will you really be paying for in the early days? Why can’t it be a true PAYG model?
• Annual review – again you’re a customer, you’re renewing for a further 12 months, why should you have to pay? It’s like the insurance companies charging existing customers more for a policy than a new customer (though in the insurance sector that has now been legislated against!)

And you should think a bit more about a couple of possibly ‘hidden’ costs:

• Discount/ Interest Charge – this works the same way as bank interest, it’s a charge based on the amount of money you have borrowed and for how long you have borrowed it. So the longer it takes a client to pay, the more it costs you. But here’s a thought…..if you’re buying an invoice factoring solution, including Credit Insurance and a Credit Control service why should you be paying more for slow payment? Surely the Service Fee covers this
• Audit charge – do you charge your customers for your time on a service review or quality check?
• Same day transfer charge – charges for transferring your funds to you...banking has moved on from the days of everything going through the BACS service, is this really a chargeable cost today
• Credit Limit checks for existing/ new customers – again surely it’s covered in that simple service fee

This is a guest blog contribution for the REC website. The views expressed by guest writers reflect the individual's personal opinions.