Web Comment

03 March 2010

Having spent the last nine years funding transactions in the recruitment sector, before moving into the umbrella/payroll/outsourcing market, I have made the following observation. Lenders are becoming particularly uncomfortable with a scenario that is occuring more frequently than ever, whereby a timesheet is being funded more than once (and in some cases three times):

1. Master vendor invoice to client
2. Agency invoice to master vendor
3. Umbrella company invoice to agency

The facilities used to do this are factoring or invoice discounting facilities. A well-run, traditional payroll company should not require debt finance, as it is generally remitting and receiving funds simultaneously. In addition to their margin, a payroll company will also be sitting on a month or a quarter’s PAYE and VAT held in their bank account. A tip to reduce (ie not totally mitigate) the risk to an agency would be to run a credit report on the umbrella companies with which you transact. If the company has a charge over book debts reported or a debenture by a bank or finance house, then the umbrella is most likely relying upon invoice finance to offer terms to agencies or to fund elaborate technical systems using money that they have not yet earned. There are so many providers in the UK market that it would seem careless to risk using a company reliant upon funding that should be cash positive.