If you place temporary workers, you pay them weekly and get paid by your client in 45 or 60 days. That gap is the single biggest constraint on how many workers an agency can put out. This works out how much cash sits in it.
Payroll funding requirement
Nothing is sent anywhere and nothing is stored. The arithmetic is shown in full further down the page.
1. The placements
2. The cash gap
Why payroll is the thing that stops agencies growing
A recruitment agency placing temporary workers is a lender whether it wants to be or not. You settle wages weekly and collect from the client a month or two later, so every additional worker you place makes the hole bigger rather than smaller. Growth consumes cash instead of producing it, which is why profitable agencies run out of money.
The number that matters is not your monthly wage bill. It is the wage bill multiplied by how long you wait, and the waiting starts when the work is done rather than when you get round to invoicing. Timesheet approval delays are part of the funding window even though they feel like admin.
What the calculator is doing
Four steps, all of them arithmetic you can check:
- Weekly invoice value is workers multiplied by hours multiplied by your charge rate.
- Weekly labour cost is workers multiplied by hours multiplied by the pay rate, plus employer on-costs where the workers are on PAYE.
- The funding window is client payment terms plus your invoicing lag, in days.
- Peak requirement is the weekly labour cost multiplied by the funding window expressed in weeks. That is the cash you have paid out before the first client payment lands.
The model assumes a steady book. If your worker numbers are climbing, the peak keeps moving and you need headroom above the figure shown, not a facility sized exactly to it.
On-costs are where margins disappear
On a CIS book the pay rate is close to the whole cost. On PAYE it is not, and agencies quoting client rates off the pay rate alone lose money on placements they think are profitable. Run the calculator on both settings with your real on-cost percentage and compare the margin percentage. A twenty percent gross margin on a CIS placement can be near nothing once employer National Insurance, pension and holiday pay are loaded on.
Where CIS deductions make it worse
If your agency does not hold gross payment status, the contractor paying you deducts 20% before you see the money, or 30% if you are not matched to HMRC records. That deduction comes off the cash you were relying on to pay next week’s wages, and it is only recoverable later. On a labour heavy book it is a substantial second gap sitting on top of the first.
Our CIS gross payment status checker will tell you whether you are likely to qualify, and what specifically is blocking it if not.
How the gap gets funded
The gap sits in your unpaid invoices, so that is what funds it. Invoice factoring advances against approved timesheets and collects from the client. Funded payroll goes further and pays the workers directly, funding gross payroll plus your margin. Recruitment invoice finance covers the facility types, and our guide to funding for construction recruitment agencies works through a full example including CIS.
Get a facility sized properly
Once you know the number, the question is which funder will advance against your particular clients and at what cost. That depends on debtor concentration, sector and how your terms of business are written. Send us the figures and we will come back with what is actually available.
Or try our other calculators.
This calculator is provided for illustration only and does not constitute financial, tax or accounting advice. It models a steady placement book and does not account for seasonality, bad debt, credit limits, disallowed invoices or your own overheads. Bolton Business Finance Ltd is not authorised or regulated by the Financial Conduct Authority and arranges non-regulated, business purpose commercial finance only.