A large part of the temporary recruitment industry is having to deal with RPOs. However this is an issue for invoice financiers as the RPO contractual terms may make the financiers agreement unenforceable. This means that a large proportion of the temporary recruitment market is being prevented from using this valuable form of working capital funding.
What is an RPO?
RPO stands for Recruitment Process Outsourcing. As the name suggests this where a large organisation, for example a local council, will outsource its recruitment process to a business who acts as an intermediary between the council and the recruitment agency.
So What is the Problem for Invoice Finance Provider?
In normal circumstances the recruiter works for the council and invoices them, and the Invoice Finance Company advances funds against the invoice value. But in these new circumstances the recruiter is still working for the council but they have to invoice the RPO.
The recruiter will have to sign a detailed contract with the RPO and this contract will often contain clauses that are disadvantageous for the recruiter. One such clause is what amounts to a ‘Pay-when-paid” clause. This means that if the council refuses to pay for whatever reason the RPO will not pay the recruiter. In this circumstance the recruiter may be totally in the right but who does he take action against for non-payment? Not the council because they haven’t been invoiced and not the RPO because contractually they are prohibited.
An invoice finance company needs to know that the invoice will get paid and this uncertainty understandably makes them very nervous. To the extent that most Invoice Finance companies will just not deal with RPOs or really restrict funding to them.
How Does the Calverton Finance Overcome This?
As Recruitment is our market we have to take a commercial view on funding RPO invoices. The first thing we do is review the contracts. Some RPOs have diluted these onerous clauses over time but old agreements will still have them in. Often it will be possible to renew the contract without the restrictive clauses. Some RPOs are more agreeable than others and we have in the past negotiated side-letters that negate the problems and allow us to provide funding.
RPOs are an increasing part of the recruitment market and we realise that we have to work with them if we are to provide generous and flexible funding to our recruitment clients.
If you are a recruitment agency dealing with RPOs and would like more information on how we can help then please contact Alisa Chauhan email@example.com or call 01908 268888.
You may also be interested in our blog on HMRC Intermediary Reporting for Recruitment Companies which you can view here.