Recruitment is one of the few sectors where the business can be profitable on paper and still run out of cash by Friday afternoon. The reason is structural, not managerial. A temp desk pays contractors weekly. It invoices the end client for the same hours. And then it waits. On the standard commercial terms that large employers impose, that wait is 45, 55, sometimes 60 days. Every placement you make widens the gap between money going out and money coming in.
This guide is for UK limited-company recruitment agencies. It explains why the weekly-wage-against-monthly-terms mismatch is the defining cash-flow problem of a temp desk, how invoice finance (specifically recruitment factoring with a pay-and-bill option) is engineered to close it, why permanent placement fees behave differently and need care, and how to read a facility so the funding solves the problem without eating the margin.
The Weekly Payroll Versus 55-Day Terms Mismatch
Most working-capital problems in business are variations on stock or debtors. A recruitment agency's problem is sharper and more relentless: it is a wage bill that falls due every single week, funded against invoices that a client will not pay for the best part of two months.
Walk the cycle. A contractor works Monday to Sunday and submits a timesheet. You approve it, run the payroll, and pay the worker the following Friday, along with employer National Insurance at 15 per cent above the £5,000 secondary threshold and any pension contribution. You raise an invoice to the end client for the same hours plus your margin. The client's accounts payable team logs it, waits out the agreed terms, and settles at day 45 or day 60. For that entire window you have already paid the worker. Multiply that across a desk of thirty, fifty, or two hundred contractors and you are permanently financing several weeks of wages out of your own reserves.
The cruel part is that growth makes it worse. A desk that lands a big new temp contract has to pay those new workers weekly from the first Friday, but the first client payment on that contract does not arrive for two months. A quiet agency has a small gap. A booming one has a large and widening one. Owner-managers regularly describe hitting a ceiling where they cannot say yes to more business because they cannot fund the payroll it would create. That ceiling is a funding problem wearing a growth costume.
Why Invoice Finance Fits a Temp Desk Almost Perfectly
Invoice finance advances a percentage of an invoice as soon as it is raised, rather than waiting for the client to pay. For a temp desk this is close to a purpose-built solution, for three reasons.
First, temp billing produces exactly the kind of invoices lenders like: frequent, verifiable against approved timesheets, spread across a range of business clients, and backed by hours actually worked. That is a clean, low-dilution ledger, which supports a high advance rate. Invoice finance and asset-based lending are a mature part of UK business funding, with billions advanced to companies against their debtor books, as the industry figures published by UK Finance show.
Second, the funding flexes with the desk. Because the advance is a percentage of your live invoices, the cash available rises automatically as you place more contractors. A fixed loan cannot do this. The moment you outgrow a loan you are back in the squeeze, whereas a facility tied to the ledger scales with you.
Third, many recruitment providers bundle a pay-and-bill back office with the funding. The provider takes the timesheets, runs the PAYE payroll, handles pension auto-enrolment, raises the client invoices, and often chases payment. For a growing agency that removes the operational grind of paying a large weekly worker base and lets a small team run a much bigger book. It is optional, but for owner-managed desks it is frequently the deciding feature.
Factoring or Discounting for a Recruitment Agency?
The two main flavours of invoice finance split on who runs the credit control and whether your clients know.
Factoring is disclosed. Invoices carry a notice that payment goes to the finance provider, and the provider (or its pay-and-bill arm) usually manages collection. For most temp desks factoring is the natural fit: it comes with the credit-control muscle and the payroll back office that a lean agency does not want to build in-house, and disclosed funding is entirely normal in recruitment, where large end clients routinely pay agencies through a factor.
Confidential invoice discounting keeps the arrangement private. Your clients do not know, and you continue to raise invoices and collect payment yourself. It suits larger, more established agencies with a capable finance function and a strong covenant, where the brand reason to stay confidential outweighs the value of outsourced collection. Providers set higher entry bars (turnover, systems, track record) for discounting.
To understand the mechanics of each in full, see our guide to invoice factoring and our guide to confidential invoice discounting, and the parent invoice finance guide for the product as a whole.
Worked Example: A £2m Temp Desk With a £35k Weekly Wage Run
Consider an agency billing £2 million a year of temporary placements. Its clients pay on average at 55 days. Its weekly wage run, including contractor pay, employer National Insurance, and pension, is around £35,000. Nothing here is unusual for a mid-sized temp desk.
| Metric | Figure |
|---|---|
| Annual temp billing | £2,000,000 |
| Average weekly billing | ~£38,500 |
| Weekly wage run (pay + employer NI + pension) | ~£35,000 |
| Average client payment terms | 55 days (~8 weeks) |
| Wages funded before first client payment lands | ~8 weeks × £35,000 ≈ £280,000 |
That final line is the number that matters. At any moment, roughly £280,000 of wages is sitting out on unpaid invoices. The agency must find that from its own reserves, and it must find more every time it grows. For most owner-managed businesses, £280,000 of permanently tied-up cash is simply not available, which is why the desk stalls.
Now layer a factoring facility advancing 90 per cent of each invoice on the day it is raised. Instead of waiting 55 days, the agency receives roughly £34,650 against a typical week's £38,500 of billing almost immediately, with the ~10 per cent balance (less fees) following when the client pays. That advance covers the £35,000 wage run more or less pound for pound. The structural gap closes. The agency can now say yes to the next contract, because the funding to pay those new workers arrives with the invoices, not two months behind them.
On cost: a facility like this typically carries a service fee (a percentage of turnover covering administration and, where taken, credit control and pay-and-bill) plus a discount margin over the Bank of England base rate on the funds drawn. Both are ordinary revenue costs of running the agency and are normally deductible against corporation tax. On £2m of billing the total cost is usually a low single-digit percentage of turnover, which owner-managers weigh against the alternative of leaving £280,000 of growth on the table.
Permanent Placement Fees Are a Different Animal
Everything above describes the temp book, which is a stream of small, frequent, timesheet-backed invoices. Permanent placement fees behave in almost the opposite way, and a good facility treats them differently.
A perm fee is lumpy. It is a single large invoice tied to one milestone (the candidate starting), and it usually carries a rebate or clawback clause: if the placed candidate leaves within, say, twelve weeks, some or all of the fee is refundable to the client. That refund risk makes a perm fee a poor funding base. A finance provider that has advanced against a perm invoice faces the prospect of the underlying fee partly evaporating if the placement falls through.
In practice, providers respond in one of a few ways: they exclude perm fees from the funded ledger entirely, they cap the advance against them at a lower rate, or they fund them only on full recourse so the clawback risk stays with you. None of this is a problem if you understand it going in. The common and sensible pattern for a mixed desk is to build the facility around the temp book, because that is what funds the weekly payroll, and to treat perm fees as upside collected in the normal way rather than as something the facility leans on. When you compare quotes, check exactly how each provider handles perm billing, because the headline advance rate on your temp ledger tells you nothing about their perm treatment.
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Eligibility and What Providers Assess
To introduce your agency to the panel we confirm it is a UK limited company or LLP borrowing for business purposes. That company gate is what keeps these introductions outside the consumer-credit regime (see the note below). Beyond that, recruitment factors assess your ledger rather than dwelling on your age, which is why even newly incorporated agencies qualify.
- Client credit quality. Who pays your invoices matters more than how long you have traded. Blue-chip end clients on clean terms support a higher advance than a thin book of small or slow payers.
- Debtor spread and concentration. A range of temp clients is ideal. If one or two clients dominate your billing, expect a concentration cap or a requirement for bad-debt protection on those names.
- Dilution history. Credit notes, queried timesheets, and disputes reduce the reliability of the ledger and can pull the advance rate down. A clean timesheet-to-payment record supports the best terms.
- Timesheet verification. Because temp invoices are funded against hours worked, providers want a clean approval trail from worker to client sign-off. A tidy back office (or a pay-and-bill provider running it) strengthens the facility.
Watch the Contract, Not Just the Advance Rate
The headline advance rate is the number agencies fixate on, but it is rarely where a facility bites. Read the rest of the agreement with equal care.
Check the service fee against the actual value delivered: a higher fee that includes pay-and-bill and credit control can be cheaper overall than a bare-funding rate you then have to staff around. Check the recourse period and bad-debt protection: under recourse factoring an unpaid invoice comes back to you, so on a concentrated book you may want non-recourse cover on your largest clients. Check the minimum fees and termination terms: many facilities carry a minimum annual fee and a notice period (commonly up to 90 days) that costs you on exit, so a cheap-looking rate can be expensive to leave. And check how perm fees and any client concentration limits are handled, as covered above.
On the payroll side, remember that your wage run is not just contractor pay. Employer National Insurance at 15 per cent above the £5,000 threshold and pension auto-enrolment are real weekly costs the facility has to fund alongside the gross wage. If you want to understand the full loaded cost of each worker on your desk before you price a facility, see our guide to the true cost of an employee in 2026/27. For lumpy one-off needs that a ledger-based facility does not suit (an office move, a bolt-on acquisition), a working-capital facility alongside your factoring can make sense.
Company Borrowers Only
The finance introductions on this page are for UK limited companies and limited liability partnerships borrowing for business purposes. We introduce your company to a panel of commercial-finance brokers; we are not a lender and do not give regulated credit advice. If you are a sole trader, an individual, or borrowing for personal or household purposes, this service is not for you, and you should speak to an FCA-authorised consumer-credit firm.
The distinction is regulatory, not a technicality. Introducing a body corporate to a commercial-finance provider sits outside the consumer-credit perimeter under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001: the credit-broking rules in Article 36A, and the broader consumer-credit regime overseen by the Financial Conduct Authority, are aimed at individuals and small partnerships, not limited companies borrowing to run a business. That is why this page is written for company directors throughout, and why the very first question on our form asks whether your agency is a limited company. If it is not, we route you to accountant support only, never to the finance panel.
How to Apply
Applying through us takes a short qualifying step, then a warm introduction to the panel. Have three things to hand: your annual temp billing (and a sense of the temp-versus-perm split), your average client payment days, and your typical weekly wage run. Those three numbers let a broker size the funding gap and quote a realistic advance rate and fee.
We then introduce your limited-company agency to our panel of commercial-finance brokers, who compete to quote recruitment factoring, with or without pay-and-bill, on your ledger. Because the leads are exclusive and B2B, you deal with brokers who understand temp-desk funding rather than a generic call centre. For neutral background on the funding options open to a growing company, the British Business Bank and the government's business finance and support pages are a good starting point. Separately, if you want the tax and structuring side handled (how the finance cost and employer National Insurance sit against your corporation tax, whether your billing entity is set up efficiently), our accountants at Holloway Davies can help as a cross-sell, distinct from the finance introduction itself.
Scroll to the form to start. Answer the company-gate question, add your billing, terms, and wage run, and we will do the rest.