Payroll funding for recruitment agencies
Payroll funding is invoice finance set up around a temp agency's weekly pay run. You pay your temps every week, but clients pay your invoices 30 days or more later. Each week, a lender pays you most of the value of the invoices for that week's approved timesheets, so you can run payroll. When the client pays, the lender takes back its advance and charges, and passes you the rest.
Why the gap exists
An agency cannot wait for the client before paying its temps. The Conduct of Employment Agencies and Employment Businesses Regulations 2003 say an employment business must not withhold a worker's pay because the hirer has not paid it (regulation 12). GOV.UK also says an agency cannot refuse to pay because the hirer is unhappy with the work, and can only delay pay for a reasonable time while it gets proof of hours (GOV.UK).
So each new temp you place adds to the cash you need up front, even when the placement is profitable. Wages are not the only cost: you also pay employer's National Insurance, holiday pay and pension contributions on the temps you employ.
A worked example
An agency has 20 temps with one client. It invoices the client £14,000 a week, on 30-day terms. Its weekly payroll, including employer costs, is £11,500. These are example figures, not a quote.
Without funding, the first invoice is paid about 30 days after it is sent. By then the agency has run about five weekly payrolls, roughly £57,500, from its own cash. After that, each week's payment from the client roughly pays for a week's payroll.
With funding at 85%, the discount charge at 6.5% a year (the Bank of England base rate of 3.75% plus 2.75%, the margin UK broker ABC Finance uses in its own cost example) and a 1% service charge:
| Paid to you each week when you invoice (85% of £14,000) | £11,900 |
| Weekly payroll to cover | £11,500 |
| Discount charge: 6.5% a year on £11,900 for 30 days | £64 |
| Service charge: 1% of the invoice | £140 |
| Cost for each week of invoices | £204 |
The advance covers the payroll from week one, and the agency does not need about £57,500 of its own cash in reserve. The cost comes out of the gap between what you bill and what you pay the temps, so check it against your margin. ABC Finance puts service charges at 0.5% to 3% of invoice value (ABC Finance). Try your own figures in the calculator.
Funding only, or funding plus back office?
"Back office" means the lender also does admin you would otherwise do yourself. What is included varies, so ask for a list.
| Task | Funding only | Funding plus back office |
|---|---|---|
| Advance against invoices | Lender | Lender |
| Raising invoices from timesheets | You | Can be the lender |
| Running payroll and paying workers | You, or your payroll bureau | Can be the lender |
| Credit checks and chasing clients | You (or the lender, if it is factoring) | Lender |
| Suits | Agencies that already have payroll and credit control in place | New or small agencies that want to spend their time on placements |
Two examples. Sonovate says it looks after credit checks, credit control, invoicing clients and collecting payments, and can manage worker and supplier payments (Sonovate). Bibby Financial Services offers "back-office, timesheet and payroll support where required" (Bibby). Neither page publishes a price. Whoever runs the payroll, your agency is still the employer of the temps it employs, with the duties that come with that.
Lenders' published terms
| Lender | Published minimum turnover | Paid up front | Source |
|---|---|---|---|
| Sonovate | No minimum | Up to 100% | sonovate.com |
| Bibby Financial Services | None published | Up to 85% | bibbyfinancialservices.com |
| Ultimate Finance | None published | Up to 95% | ultimatefinance.co.uk |
| Time Finance | None published | Up to 90% | timefinance.com |
Figures as published on each lender's own website, checked 14 October 2026. None of these lenders publishes its fees.
For how a whole recruitment facility works, including permanent placement fees, read recruitment invoice finance. For timesheet approval in temp, care and healthcare staffing, read invoice finance for staffing agencies.
What to have ready
- A list of unpaid invoices by client and age (an aged debtor report)
- Your signed terms of business with each client
- A few weeks of approved timesheets and the invoices raised from them
- Proof that your PAYE and VAT payments to HMRC are up to date
- Details of any loan or overdraft with a charge over your invoices
Questions
Is payroll funding a loan?
Not in the usual sense. The lender buys or lends against your invoices, and is repaid when your clients pay them. How much you can draw rises and falls with how much you invoice.
What if a client never pays an invoice the lender has funded?
On most facilities you must repay that advance yourself. This is called recourse. Some lenders sell bad debt protection, which covers a client that goes bust; it usually does not cover a client who disputes the hours. See recourse vs non-recourse for the difference.
Can payroll funding cover umbrella company or limited company contractors?
Usually, yes. The lender funds your invoice to the client either way. What changes is who you pay: the umbrella company or the contractor's company, rather than the worker. Ask the lender how its payment run handles each.
How fast can I start?
That depends on the lender and on how quickly you send documents. Have your aged debtor list, client terms of business and recent timesheets ready before you apply.
More on who carries the risk of a client not paying: recourse vs non-recourse.
Founder & Managing Director, Muswell Rose, founder and PSC of Best Business Loans Ltd
Adam is the founder and managing director of Muswell Rose and a founder of Best Business Loans Ltd, the company behind Market Invoice. He spent over three years as managing director of Penny, a UK invoice finance business, and his career runs through insurance, mortgages, commercial finance and fintech lending. He writes the Market Invoice library.
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