Wednesday - 19 November 2008
Features
Recent comments made by IT, banking and legal recruiter Greatfleet (see p5), which went into administration last week, that difficulties with its invoice financing were a factor in its demise
have brought the issue to the fore.
Invoice discount finance providers lend money on the basis of raised invoices allowing recruiters to bridge the gap between paying the agency staff and receiving payment from clients, who expect credit.
This type of funding is a valuable source of funding for many recruiters, so any suggestion there are question marks over it would send shockwaves across the industry. These question marks can only be heightened by fears that with the credit crunch showing no signs of lessening, and thus the availability of funds to lend reduced, invoice discounters might be restricting, or even withdrawing finance.
Recruiter also understands the withdrawal of invoice discount finance played a role in last year's collapse of IT recruiter Veritas IT.
Christopher Clark, a director in the corporate finance division at BDO Stoy Hayward, told Recruiter: "There are more cases of this happening", adding that his company had recently been working with banks to help agencies to recover from this type of situation.
Invoice discounters lend recruiters money on the basis of raised invoices, allowing the company to bridge the gap between paying the agency staff and receiving payment from clients, who expect credit. For many recruiters, they are a vital source of funding.
Stuart Goldup, finance director of Recruitment Investment Group confirms the importance of this type of funding for many recruiters. "For our temporary staffing businesses, the access to capital through invoice discounting is essential," says Goldup. Invoice discount finance is also vital for the group to achieve its growth plans, he adds.
Goldup continues: "If an invoice discounter did have concerns and felt they were going to have to withdraw funding, we would certainly need to replace that funding."
Comments made to Recruiter by Christopher Clark, a director in the corporate finance division at BDO Stoy Hayward, suggests that recruiters are right to have concerns.
Clark said there were "more cases" of providers withdrawing funding from recruiters. He added that his company had been working with three companies and banks to help agencies to recover from this type of situation.
Recruiter also understands that the withdrawal of invoice discount finance played a role in last year's collapse of IT recruiter Veritas IT.
According to one recruitment industry source, who wished to remain anonymous, so far this year four or five recruiters have had their loan facility withdrawn by their finance discount provider.
However, Clark claims that rather than providers 'pulling the plug', the problems have originated with recruiters themselves. Some are not managing their cash-flow successfully, he says, while other are failing to cut costs quickly enough as turnover falls.
Clark adds: "Invoice discounting companies are only applying the pre-determined criteria, though probably more stringently, that's all".
However, the picture is a mixed one. In some cases, rather than withdrawing or reducing funding, some providers are actually extending their lending facilities to give recruiters more leeway.
Clark argues it is difficult for some recruiters to manage their cash-flow because they have only enjoyed good economic times. He adds that he "wouldn't be surprised" if there were more cases [of finance] companies withdrawing their lending facilities.
Paul Saunders, director of the recruitment finance division at Lloyds TSB, told Recruiter that despite the economic slowdown, there has been no tightening up in the criteria used when lending to recruiters.
He says that as long as recruiters are placing workers and producing invoices, and time-sheets are being signed on time, invoice discounting companies will continue to have confidence in recruiters and continue to lend.
He says the only circumstances where an invoice discounting company would pull the plug would be "in an extreme situation where they felt their loan was at risk."
However, he says that in the present business climate, it is "more about how to support recruiters rather than about withdrawing credit facilities". "We haven't that discussion to withdraw funding with recruiters ourselves," Saunders adds.
Ross McFarlane, director, UK sales & client relations at RBS, told Recruiter: "We have made no wholesale change to our lending stance to the recruitment sector. Indeed, we see our product solutions as a good fit to the needs of recruitment companies, and a flexible solution to the tighter conditions the UK economy is currently facing."
Michael Healy from Leonard Curtin, one of the joint administrators for Greatfleet, also defends the record of invoice discounters. "I would say it's not the invoice discounters withdrawing funding, it's more that recruitment in general has suffered in the downturn. Due to the credit crunch, people are not recruiting staff."
He says the origin of many of the problems recruiters face lies with HMRC (Her Majesty's Revenue and Customs) — a major creditor of many recruiters — which is increasingly taking action to recover debts. Though he emphasises that HMRC is behaving entirely legitimately, this "almost forces" invoice discounters to protect their own assets by appointing administrators, he says.
However, despite this, Healy says invoice discounters "still have a strong appetite to lend". Nor does he believe interest rates rises have made invoice discounting too expensive. "I think invoice discounting is still a reasonable and cost-effective method of raising finance in comparison to other forms of lending," he says.
Are lenders pulling the plug on finance?
Published: 06 August 2008
have brought the issue to the fore.
Invoice discount finance providers lend money on the basis of raised invoices allowing recruiters to bridge the gap between paying the agency staff and receiving payment from clients, who expect credit.
This type of funding is a valuable source of funding for many recruiters, so any suggestion there are question marks over it would send shockwaves across the industry. These question marks can only be heightened by fears that with the credit crunch showing no signs of lessening, and thus the availability of funds to lend reduced, invoice discounters might be restricting, or even withdrawing finance.
Recruiter also understands the withdrawal of invoice discount finance played a role in last year's collapse of IT recruiter Veritas IT.
Christopher Clark, a director in the corporate finance division at BDO Stoy Hayward, told Recruiter: "There are more cases of this happening", adding that his company had recently been working with banks to help agencies to recover from this type of situation.
Invoice discounters lend recruiters money on the basis of raised invoices, allowing the company to bridge the gap between paying the agency staff and receiving payment from clients, who expect credit. For many recruiters, they are a vital source of funding.
Stuart Goldup, finance director of Recruitment Investment Group confirms the importance of this type of funding for many recruiters. "For our temporary staffing businesses, the access to capital through invoice discounting is essential," says Goldup. Invoice discount finance is also vital for the group to achieve its growth plans, he adds.
Goldup continues: "If an invoice discounter did have concerns and felt they were going to have to withdraw funding, we would certainly need to replace that funding."
Comments made to Recruiter by Christopher Clark, a director in the corporate finance division at BDO Stoy Hayward, suggests that recruiters are right to have concerns.
Clark said there were "more cases" of providers withdrawing funding from recruiters. He added that his company had been working with three companies and banks to help agencies to recover from this type of situation.
Recruiter also understands that the withdrawal of invoice discount finance played a role in last year's collapse of IT recruiter Veritas IT.
According to one recruitment industry source, who wished to remain anonymous, so far this year four or five recruiters have had their loan facility withdrawn by their finance discount provider.
However, Clark claims that rather than providers 'pulling the plug', the problems have originated with recruiters themselves. Some are not managing their cash-flow successfully, he says, while other are failing to cut costs quickly enough as turnover falls.
Clark adds: "Invoice discounting companies are only applying the pre-determined criteria, though probably more stringently, that's all".
However, the picture is a mixed one. In some cases, rather than withdrawing or reducing funding, some providers are actually extending their lending facilities to give recruiters more leeway.
Clark argues it is difficult for some recruiters to manage their cash-flow because they have only enjoyed good economic times. He adds that he "wouldn't be surprised" if there were more cases [of finance] companies withdrawing their lending facilities.
Paul Saunders, director of the recruitment finance division at Lloyds TSB, told Recruiter that despite the economic slowdown, there has been no tightening up in the criteria used when lending to recruiters.
He says that as long as recruiters are placing workers and producing invoices, and time-sheets are being signed on time, invoice discounting companies will continue to have confidence in recruiters and continue to lend.
He says the only circumstances where an invoice discounting company would pull the plug would be "in an extreme situation where they felt their loan was at risk."
However, he says that in the present business climate, it is "more about how to support recruiters rather than about withdrawing credit facilities". "We haven't that discussion to withdraw funding with recruiters ourselves," Saunders adds.
Ross McFarlane, director, UK sales & client relations at RBS, told Recruiter: "We have made no wholesale change to our lending stance to the recruitment sector. Indeed, we see our product solutions as a good fit to the needs of recruitment companies, and a flexible solution to the tighter conditions the UK economy is currently facing."
Michael Healy from Leonard Curtin, one of the joint administrators for Greatfleet, also defends the record of invoice discounters. "I would say it's not the invoice discounters withdrawing funding, it's more that recruitment in general has suffered in the downturn. Due to the credit crunch, people are not recruiting staff."
He says the origin of many of the problems recruiters face lies with HMRC (Her Majesty's Revenue and Customs) — a major creditor of many recruiters — which is increasingly taking action to recover debts. Though he emphasises that HMRC is behaving entirely legitimately, this "almost forces" invoice discounters to protect their own assets by appointing administrators, he says.
However, despite this, Healy says invoice discounters "still have a strong appetite to lend". Nor does he believe interest rates rises have made invoice discounting too expensive. "I think invoice discounting is still a reasonable and cost-effective method of raising finance in comparison to other forms of lending," he says.
| Job Title | Job Location | Job Position |
|---|---|---|
| Thriving Public Sector market requires... | London | Permanent |
| Senior Marketing Recruiter - Dubai -... | International | Permanent |
| Consultant (Sales & Marketing... | North West | Permanent |
| Senior Recruitment Consultant for Dubai... | International | Permanent |
| Senior Recruiter to set up Insurance... | London | Permanent |
| Senior Marketing Recruiter to develop... | London | Permanent |
