Using an all in funder, offering what they call 100% funding, where they raise your sales invoices and make payments to your temporary workers and sending you your profit for the week sounds great. Yet, they do come at a cost.

The main draw back is that their primary function is that of lending money, and the payroll and provision of a tailored back office solution for your business is secondary.

The differences between using a funding solution provider and having your own specialist back-office solution with a separate Invoice Discounting (ID) facility comes down to control, cost, flexibility, and the level of service you receive. Here’s a comparison of the two options, along with the benefits of having your own back-office solution plus ID facility over a comprehensive provider:

1. 100% Outsourced Funding & Back Office Solution

What They Provide:

• 100% funders offers a fully outsourced solution for recruitment agencies. They handle back-office tasks such as payroll, billing, credit control, and funding for temporary or contract workers. They also provide payroll funding, effectively offering an integrated service that combines back-office support with finance.

Benefits of Using 100% Funders:

• Ease: One point of contact for payroll, funding, invoicing, and compliance.
• Time-saving: You don’t need to build or manage an in-house back-office team or deal with multiple service providers.
• Cash Flow Management: They provide funding based on your timesheets, so you don’t have to worry about cash flow issues caused by delayed client payments.
• Credit Control: They handle chasing payments, which reduces the administrative burden on your team.
• Compliance: They ensure all processes meet HMRC and industry standards, providing peace of mind.
• Ideal for new starts. It is very simple to understand and for new starts where you may be in construction industry, or only have 12 client (concentration issues) or use umbhrellas for payroll

Drawbacks of Using 100% Funders:

• Cost: Their fees are based on a percentage of your turnover. This can become expensive as your business scales, especially when compared to engaging with a specialist back-office outsourcer and using a separate ID facility.
• Less Control: You may have less flexibility and control over how specific back-office tasks are handled. You’re tied to their system and procedures.
• Time consuming. You still have to issue your own timesheets, collect these and upload to their systems.
• Generic Approach: Their services are designed to suit a broad range of clients, which means they may lack the customisation and personalisation of a bespoke solution.
• Brand image. You lose your own branding, and sometimes look like a branch of the 100% funder.

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2. Specialist Back-Office Solution + Separate Invoice Discounting (ID) Facility

What This Approach Involves:

• A specialist back-office solution involves hiring or outsourcing professionals to handle specific administrative tasks, such as payroll, billing, compliance, and credit control. Meanwhile, you have a separate ID facility with a bank or finance provider for funding your business (i.e., receiving cash advances against unpaid invoices).

Benefits of Having a Specialist Back-Office + ID Facility:

1. Cost Control:
   • Back-office costs: If you handle back-office functions internally or through a specialist provider, you have more control over pricing. Typically, this is more cost-effective than a percentage-based fee, especially as your business grows.
   • ID facility costs: With invoice discounting, you only pay for the funding based on the value of invoices, without additional administrative or management fees associated with comprehensive 100% providers.
   • You can choose to chase your own debts or ask the specialist outsourcer to provide that service
2. Customisation and Flexibility:
   • You can tailor the back-office services to meet your specific needs, allowing for greater control over how payroll, compliance, and invoicing are handled. This is ideal if you have unique processes or prefer to work with systems that fit your agency.
   • You also have more flexibility in managing the ID facility, as you’re not tied to the terms of an all-in-one 100% funder. This gives you the ability to negotiate terms with your bank or lender for the best funding arrangements.
3. Transparency:
   • You have more visibility and control over your finances and operational processes. For example, you’ll be able to monitor cash flow, debt collection, and funding needs closely with separate ID reporting.
4. Specialist Knowledge:
   • A dedicated back-office solution brings specialist knowledge tailored to your business. You can work with experts who understand the complexities of the recruitment industry and your specific operational needs. This contrasts with a more standardised service offered by a 100% provider.
5. Improved Client Relationships:
   • Managing your own back-office functions gives you direct control over your invoicing and credit control processes. This enables better communication with your clients regarding payments, helping you build stronger relationships, which may be harder with an intermediary.
6. Compliance and Risk Management:
   • You can work with compliance specialists who offer bespoke solutions in line with your recruitment business. If your industry has specific compliance needs, having your own team gives you more confidence in meeting regulatory requirements.

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Drawbacks of the Specialist Back-Office + ID Facility Approach:

• More Responsibility: You or your team may need to manage multiple relationships (back-office provider and ID lender), which can add complexity. Typically though, a good outsourcer will manage the pay and bill as well as funding, therefore replicating what a 100% funder can offer.
• Initial Setup: Setting up a dedicated back-office team or specialist provider takes time and effort initially, whereas a 100% solution is an “off-the-shelf” option, wqhich makes it ideal for new start businesses.

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In Summary:

• 100% funders offer an all-in-one solution that integrates back-office support and funding, which is ideal for agencies looking for a simple, hassle-free option, particularly if they are new or smaller in scale.
• A specialist back-office solution + ID facility offers greater customisation, cost-efficiency, and control, which is more beneficial for larger, growing recruitment agencies with specific needs. While it requires more management, it gives you flexibility, better cost savings, and the ability to build more personal client relationships.

Choosing between the two options depends on your agency’s size, growth stage, and desire for control versus convenience.

If need help deciding, please get in touch and we’ll talk you through both options.