How labour hire companies can benefit from invoice discounting

The labour hire industry in Australia is quite competitive. However, it is also one of the slowest paying industries in the country. Effective cash flow management is imperative to pay contractors in a timely manner, regardless of when clients clear invoices, in order to keep the business running and work on expansion plans.

Industry Challenges: Reasons for Insufficient Cash Flow

Insufficient cash is the number one problem faced by Australian contract labour hire companies and also the main cause of business failure within the industry.

Limited working capital:

Most start-ups and small sized labour hire companies have limited budget, which is mainly reserved for incurring day to day business expenses. Financial exigencies such as paying temporary labour out of its own pocket may throw a small company’s budgetary planning out of whack. Not to forget that a severe shortage of funds also gets in the way of its business expansion goals.

Client-side delays in clearing invoices:

The commodity that a labour hire company sells is ‘labour’ – the skills, work experience and time of contractors. As such, the financial planning of almost all such companies banks on the wages of the contractors. Average payments in the industry happen anytime between 30 and 60 days, making effective cash flow management quite a challenge.

A client may not clear invoices immediately after the provision of contractual service personnel by a labour hire agency. An agency has to bear a host of contactor expenses, such as salaries, payroll tax and rent from the time of labour hire till the time the client clears invoices. For all this, it requires a lump sum standing working capital.

Stalling of cash flow:

Businesses providing permanent labour hire services face another critical threat – that of a candidate not working out. In this situation, the client may refuse to clear any outstanding invoice, causing a significant cash flow interruption. Such sudden stalling of cash flow has a enormously adverse effect on a business’ financial planning and performance.  

More business increases financial pressure:

For any company offering permanent or interim recruitment services, the pressure increases even more when it has plans of business expansion and wins bigger contracts. Workers need to be paid on time, but the agency may not receive payments till more than 2-3 months later.  It has to pay the contract labours out of its own coffers!

Difficulty in getting business loans: 

Many small-sized labour hire recruitment agencies, including start-ups do not have an exhaustive trading history, which makes it difficult for them to secure overdrafts or qualify for bank-approved business loans.

Faced with such challenges, the company either has to look for alternatives to solve its cash flow problem (such as pledge its assets to individual financers, often at exorbitant interest rates) or is left with no other option but to turn away lucrative business or even close shop.

How Invoice Discounting Can Help the Labour Hire Sector

Get funds within 24 hours: With invoice discounting, labour hire companies can get their verified outstanding invoices cleared within 24 hours! There are no hassles, no upfront fees, no hidden charges or complicate paperwork involved and they can repay the money in easy weekly repayments, starting anytime they want, without incurring any additional costs.

Gain financial freedom and strength:

Instant funding allows contract labour hire companies to pay for contractors’ wages and manage their erratic cash flow shortages. Most importantly, it gives them the financial confidence to take on bigger contracts, expand their work force and grow their business.

Grow start-ups through fund:

 Without any recent profitability or trading history, early stage companies and start-ups often find it difficult to get traditional bank loans. Invoice discounting does not take such determinants into consideration while closing cash flow gaps, which is why it becomes a very attractive financing option for young businesses that want to convert their outstanding invoices into ready cash.

Invest in winning business opportunities:

 The proliferation of contract labour hire companies across Australia presents lucrative opportunities for acquisitions and mergers within the industry. However, even established service providers require a significant capital to materialize such business decisions. With invoice discounting, investors can directly fund such business opportunities without chasing traditional sources of finance (such as banks, mortgages, etc.) or paying outrageous interest rates. 

Maintain efficient cost structure and credit control: 

The labour hire industry is quintessentially a service-based industry and therefore, its cost structure is quite different from other industries. Businesses within this sector are often very lean in terms of their business overheads and may not be able to hire staff to manage accounts and keep a track of all accounts receivable. This may topple their debtor days ratio, delaying payments and increasing overheads as a consequence. Invoice discounting not only allows labour hire companies to tackle debtor days blow outs and maintain a strong cash flow but also saves them from the cost of hiring staff and incurring overheads related to credit control.

Conclusion

By meeting the humongous demand for skilled professionals, especially in the Australia’s most booming business sectors such as mining, construction works, commercial property and manufacturing, the service-oriented labour hire industry forms the backbone of the country’s economy.

With fast, easy and transparent funding, invoice discounting not only helps small and medium-sized businesses within this industry to stay financially strong and functionally profitable but also equips them with the capabilities to bridge the gap between labour demands and supply and contribute to the country’s growth and prosperity.