As spiraling inflation, tax rises and the war in Ukraine slow the post-pandemic economic recovery, the UK’s recruitment consultancies will need to explore different financial options to survive and thrive.

Many business owners turn to invoice finance — a service where a lender purchases unpaid invoices from businesses who need an advance on their payments — because billions of pounds are tied up in unpaid or late invoices every year.

Last year, research published by IGF reported 27% of businesses have used this service to plug their cashflow gap. Invoice finance is becoming crucial for the recruitment sector because without a steady stream of cash, agencies can’t operate at their full potential.

Unfortunately, misconceptions have put some off this useful source of funding. It’s time to dispel five common myths about invoice finance.

1. Invoice Finance Can Place My Business at Risk

No funding provider actively wants to put your business at risk, but it’s true the “Old Guard” of invoice finance used personal guarantees, security over the business and full recourse to protect themselves. They didn’t have access to the appropriate data to provide the product customers want and often relied on historic finance figures that were three months old or more.

Thanks to advances in open banking, fintechs and other forward-looking lenders can now evaluate real-time data that’s embedded in daily workflows and transactions to offer more suitable products.

2. Invoice Finance Is Expensive and Lacks Transparency

Historically, some products were purposely opaque in how they were structured, but more modern fintech solutions are offered through transparent platforms.

Ultimately, you’re looking to drive value creation in your business. Our data shows that your chances to succeed as a recruitment agency within four to five years of setting up are more than double if you have a debenture in place.

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3. Funders Offer Generic Products That Don’t Fit My Needs

There’s a widespread misconception that invoice finance is the same product wherever it’s from: complicated pricing, long-standing tied contracts and variable advance rates that fluctuate and aren’t aligned to your needs.

But fintechs bypass these issues with an agility that allows them to address a specific problem or sector with laser-sharp focus. A dedicated player who knows recruitment will offer you a configurable platform.

4. Traditional Funders Don’t Integrate Well With My Daily Needs and Usage

A specialist fintech platform will always integrate with your existing system.

There are now over 5 million individuals and businesses using open banking-enabled services in the UK. It took just four months to go from four to five million, a huge acceleration in growth.

This push for open banking and the availability of Application Programming Interfaces (APIs) has enabled fintechs to build products that operate in an open environment and connect to your other financial systems. Tech platforms built in that way are customer-centric and deliver the right experiences for you. A true market leader will also build partnerships and give you access to an ecosystem that offers more relevant solutions.

5. The Size or Maturity of My Agency Restricts My Access to Funding

When you work with a traditional lender, they will look at your risk and apply their risk controls in a traditional way across all sectors.

But the truth is that enterprise-sized agencies shouldn’t struggle with export debt and concentration limits — they should get funding based on their actual business. And in today’s world, where flexible working is deeply transforming the recruitment industry, permanent recruiters should also have the flexibility to go into contract recruitment.

With a more advanced fintech solution, size and maturity won’t limit your growth. A funder who genuinely understands recruitment will base their decisions on your contracts, SOW milestones and timesheets.

It’s difficult for recruiters to move away from their banks due to a lack of understanding of the alternatives. By dispelling some of the major misconceptions, we can help to change this picture.

Open banking and open finance are transforming things by freeing up the system, making it more transparent and giving customers more flexibility and choice. By relying on networks instead of centralization, this data-led technology can help you to securely share your financial credentials with a wider range of financial institutions to facilitate better transactions and better products for your needs.

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