Business funding for recruitment agencies

A recruitment agency supplying temporary workers pays them every week, invoices the client for the same hours and then waits for the client to pay on its terms. Invoice finance is built for that gap, and a funder will judge your clients, your timesheet controls and how you handle tax on workers paid through umbrella companies.

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Paying temps weekly while clients pay later

A temporary desk runs on a timing gap. Workers submit timesheets for the week, the agency runs payroll and pays them, and it invoices the client for the hours at the agreed charge rate. The client pays at the end of its payment terms. Until that first payment arrives another payroll goes out every week, so a desk that is winning business needs more cash for every week it grows.

The law keeps that gap with the agency. Regulation 12 of the Conduct of Employment Agencies and Employment Businesses Regulations 2003 stops an employment business withholding a worker’s pay because the client has not paid, or because the worker cannot produce a client-signed timesheet when the agency can check the hours another way. If a client fails, the agency still owes the wages.

Permanent recruitment has a different shape. A placement fee is invoiced when the candidate starts, and your terms of business may promise a rebate or a replacement candidate if the placement ends early. Until that period has passed a funder treats the fee as at risk, and fee income arrives in lumps that are harder to lend against than a weekly temp ledger.

A temp desk with 40 workers

Illustrative example

An agency places 40 temporary workers on 37.5 hours a week at an assumed pay rate of £14 an hour, holiday pay included, and charges the client an assumed £19.50 an hour plus VAT. The client pays an assumed 45 days after the invoice. Employer National Insurance is 15% of each worker’s pay above £96 a week; pension contributions are left out to keep the sums clear.

Gross pay for the week, 40 × 37.5 hours × £14: £21,000
Employer National Insurance, 40 × 15% × (£525 − £96): £2,574
Weekly payroll cost: £23,574
Weekly invoice, 40 × 37.5 hours × £19.50, plus VAT: £35,100
Advance against each invoice at an assumed 85%: £29,835
Payroll paid before the first client payment, about seven weeks at £23,574: £165,018

Without funding, the agency finds about £165,000 of payroll before its first client payment, and more for every worker it adds. With invoice finance at the assumed 85% advance, each week’s invoice releases £29,835, which pays that week’s £23,574 payroll and leaves £6,261 towards the £5,850 of VAT on the invoice, before the funder’s charges.

Invoice finance for agencies

Invoice factoring: The funder advances against each invoice, runs your sales ledger and collects from clients, who see the funder’s name on the invoice. Invoice factoring explains the costs.
Invoice discounting: The funder advances against the whole ledger while you collect from clients yourself. Funders look for an established agency with a clean collection record; invoice discounting sets out the terms.
Payroll and back-office funding: Some funders specialise in agencies and run the temp payroll, invoicing and collection as well as advancing against invoices, with the service priced into their fees.
Selective invoice finance: You choose which invoices to fund, for example those to one new client on long terms. Selective invoice finance covers how it is priced.

Umbrella companies and the April 2026 rule

Agencies are accountable for umbrella company tax

From 6 April 2026, a recruitment agency supplying workers paid through an umbrella company is accountable for the income tax and National Insurance due on their pay. Where there is a chain of agencies, the rule applies to the agency that contracts directly with the end client, and where there is no agency, to the end client. If an umbrella company fails to pay over the tax, the agency can be left to meet it, so expect a funder to ask how you choose and check the umbrella companies you use.

A baker taking a tray of fresh bread from a rack

What an invoice funder checks

A funder lending against your ledger is lending against your clients, so it reads the debtor list first: who the clients are, the share of invoices each accounts for, how long each takes to pay and whether any invoices are disputed. A desk that depends on one client is a concentration the funder may limit.

It then tests your process. Timesheets approved by the client, a clear trail from timesheet to payroll to invoice, and contracts that bind the client to pay for approved hours make an invoice easier to collect. Credit notes, backdated rate changes and invoices raised before hours are approved make it harder.

Tax comes next: payroll filings and payments up to date, VAT paid on time, workers’ employment status settled, and the checks you run on umbrella companies. If you have a time to pay arrangement with HM Revenue and Customs, declare it at the start.

Pay costs and the owner’s position

For 2026 to 2027 employer National Insurance is 15% of each employee’s pay above £96 a week, and eligible employers can claim an Employment Allowance of up to £10,500. After 12 weeks in the same job an agency worker qualifies for the same basic pay and conditions as someone employed directly, which can raise your pay cost partway through an assignment. Price both into the charge rate before you sign the client.

Invoice finance agreements can include a director’s guarantee or an indemnity covering the accuracy of the invoices you submit. Read its scope, and see what a personal guarantee means for a director. Where clients follow one or two consultants, key person cover through business protection pays the agency if one of them dies or falls seriously ill.

Papers an agency should have ready

An aged debtor list by client, with credit notes and disputes shown
Your terms of business and the contracts with your largest clients
Timesheet approval records and the trail from timesheet to payroll to invoice
Payroll and VAT filings for the last twelve months
Your due diligence file on each umbrella company you use
Management accounts showing gross margin per hour by client

Invoice finance cost calculator

The cash an invoice finance facility releases and its total cost for a year, with the service fee on turnover included.

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Questions people ask

How do recruitment agencies fund their temp payroll?

Invoice finance is built for it: a funder advances an agreed share of each client invoice when it is raised, and the agency uses the advance to pay the next payroll. Some funders specialise in agencies and also run payroll and collections. Agencies with steady profits can add an overdraft or a revolving credit facility, and a growing agency may need both.

Do I have to pay temps if the client has not paid?

Yes. Regulation 12 of the Conduct of Employment Agencies and Employment Businesses Regulations 2003 stops an employment business withholding a worker’s pay because the client has not paid it. It also stops you withholding pay because the client has not signed a timesheet, where you can confirm the hours another way. The risk of a client not paying sits with the agency.

Can a new recruitment agency get invoice finance?

Some funders work with new agencies, particularly those that also run the payroll and collections, because they can see every timesheet and invoice. They will look at the founders’ track record in recruitment, the clients already signed, and the terms of business. A funding search through Swoop covers limited companies, and sole traders and partnerships borrowing more than £25,000.

Who pays if an umbrella company does not pay the tax?

From 6 April 2026, the recruitment agency that contracts with the end client is accountable for the income tax and National Insurance on pay to workers it supplies through an umbrella company. If there is no agency, the end client is accountable. Check each umbrella company you use and keep a record of the checks.

Finance is subject to status and to the lender’s terms. A personal guarantee makes you liable for the company’s debt if it does not repay, and it can be enforced against your own assets, including your home. Nothing here is a personal recommendation.

Business funding for recruitment agencies

Paying temps weekly while clients pay later

A temp desk with 40 workers

Invoice finance for agencies

Umbrella companies and the April 2026 rule

Agencies are accountable for umbrella company tax

What an invoice funder checks

Pay costs and the owner’s position

Papers an agency should have ready

Invoice finance cost calculator

Questions people ask

Funding by sector

Invoice finance

Invoice factoring

Invoice discounting

Selective invoice finance

Start a funding search

Cover for a personal guarantee