Fewer SMEs using external funding sources, but invoice financing remains key for recruiters
28 August 2014
The proportion of SMEs using outside sources of funding has fallen, according to research from BDRC Continental.
Thu, 28 Aug 2014 | By Nicola SullivanThe proportion of SMEs using outside sources of funding has fallen, according to research from BDRC Continental.
Its SME Finance Monitor found that in the second quarter of this year 39% of SMEs used external finance, which was broadly in line with most of the year, but somewhat lower than the equivalent quarter in 2012 (43%).
While this has prompted fears from the Forum of Private Business that distrust in the banking sector is affecting small businesses’ growth plans, the Association of Professional Services Companies (APSCo), claims getting hold of invoice finance is the “biggest issue” for staffing companies and recruitment agencies, many of which are SMEs.
Invoice financing, which is where a third party agrees to buy unpaid invoices for a fee, is used by recruitment firms to plug the gap between paying the worker and being paid by the client.
Samantha Hurley, head of external relations at APSCo, says growing number of managed service providers (MSP) and recruitment process outsourcing (RPO) firms using ‘pay when paid’ clauses in their contracts makes it more difficult for recruitment firms to this as a source of funding.
She told Recruiter: “The ‘pay when paid’ is absolutely one of the biggest issues for SMEs in the industry. They want to work with bigger companies and they want to work with the government. But the government almost always has an MSP in place and so do an awful lot of large companies now, and a lot of these have ‘pay when paid’ clauses.”
APSCo has called for backstops to be put into such contracts, so that invoice finance companies can take the amount on as a debt because it is readily payable.
Its SME Finance Monitor found that in the second quarter of this year 39% of SMEs used external finance, which was broadly in line with most of the year, but somewhat lower than the equivalent quarter in 2012 (43%).
While this has prompted fears from the Forum of Private Business that distrust in the banking sector is affecting small businesses’ growth plans, the Association of Professional Services Companies (APSCo), claims getting hold of invoice finance is the “biggest issue” for staffing companies and recruitment agencies, many of which are SMEs.
Invoice financing, which is where a third party agrees to buy unpaid invoices for a fee, is used by recruitment firms to plug the gap between paying the worker and being paid by the client.
Samantha Hurley, head of external relations at APSCo, says growing number of managed service providers (MSP) and recruitment process outsourcing (RPO) firms using ‘pay when paid’ clauses in their contracts makes it more difficult for recruitment firms to this as a source of funding.
She told Recruiter: “The ‘pay when paid’ is absolutely one of the biggest issues for SMEs in the industry. They want to work with bigger companies and they want to work with the government. But the government almost always has an MSP in place and so do an awful lot of large companies now, and a lot of these have ‘pay when paid’ clauses.”
APSCo has called for backstops to be put into such contracts, so that invoice finance companies can take the amount on as a debt because it is readily payable.
Meanwhile, Jo Scott, a manager from rec-to-rec firm Sharna Associates, said she is seeing “considerable” evidence of SMEs’ growth plans although the mood is cautious.
She told Recruiter: “Whilst the confidence to recruit is fairly high, financial implications are making our clients more risk averse across both SME and corporate firms. Noticeably, however, SME growth plans seem to be heavily weighted towards permanent recruitment, rather than more costly temporary business.”
She added: “SMEs do have the capability to invest, but with caution.”
