Temp agencies pay workers out of their own cash, then wait for the client to settle the invoice, so the business funds the gap between weekly payroll and 30 or more days of client terms. Agencies usually cover it with a mix of cash reserves, an overdraft or invoice finance, and they shrink it by agreeing shorter terms and collecting from repeat clients more reliably.
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The short version
- Temp agencies pay workers weekly from their own cash and wait 30 days or more for the client to pay.
- With one worker billed £870 a week on 30-day terms, £4,350 of invoices are out before the first one is due.
- The usual ways to fund the gap are retained profit, an overdraft or invoice finance, which costs a fee on every invoice.
- Shorter terms, direct debit for repeat temp clients and chasing from the day after the due date can make the gap smaller.
- Adfin collects payments; it doesn't lend or advance money against invoices.
How big the gap gets
A temp agency can be placing workers profitably every week and still be short of cash on a Friday, because the worker bill arrives whether or not the client has paid. You also can't hold back a temp's pay for work done because the client hasn't paid you.
Here's how the gap builds with one client on 30-day terms. Say you supply one worker and invoice £870 each week from the timesheet.
- Week 1: you pay the worker and send the first £870 invoice.
- Weeks 2 to 5: you pay the worker each Friday and send four more invoices.
- Around week 5: the first invoice falls due. If the client pays on time, it arrives now.
By then you've paid five weeks of wages and you've got £4,350 of invoices out, and just one of them is due. If the client pays 9 days late, which is close to the typical lateness across UK small businesses in Xero's data, you'll have sent a sixth invoice and have £5,220 outstanding before any money comes back. That's one worker. With ten workers across three clients, the same pattern runs to tens of thousands of pounds of your own cash.
Longer terms stretch it further. The REC has said hirers have demanded terms of up to 120 days from suppliers of agency workers, which on the same numbers would leave around 18 weekly invoices unpaid at once.
Ways to fund the gap
Agencies usually use some mix of their own cash, an overdraft and invoice finance.
Retained profit carries no interest or fees, but it limits how many workers you can put out at once. An overdraft is flexible and familiar, though the bank sets the limit from your accounts, and it doesn't grow on its own as you place more temps.
With invoice finance, a funder advances a share of each invoice, often up to 90% of its value, and you get the rest, minus fees, when the client pays. Factoring usually means the funder also runs your sales ledger and collects from clients. Recruitment funders rarely publish exact rates. One broker's index puts typical service fees at 0.8% to 1.8% of turnover for standard SMEs, plus a discount charge of SONIA + 2.5% to 4.5% a year on the money you draw. Three points to check before you sign:
- whether you're liable if a client doesn't pay (with recourse facilities, you usually are)
- the minimum period and notice period, and any fee for leaving early
- whether the funder will contact your clients, and how
Invoice finance can make sense when you're growing fast and the gap keeps widening. It's a cost on every invoice for as long as the facility runs, though, so it's worth shrinking the gap before you fund it.
How to make the gap smaller
Agree shorter terms where you can. Weekly temp invoices on 7 or 14 days rather than 30 bring the first payment forward by weeks. Put it in your terms of business at the start of a relationship, because it's much harder to change once a client is used to 30 days.
Move repeat temp clients to direct debit. A client you invoice every week from timesheets is a natural fit. With Adfin, one mandate covers every invoice, and each collection uses that invoice's amount and due date, so a week of 41 hours followed by a week of 32 isn't a problem. The client is told at least three working days before each payment, failed collections are retried for free, and you don't need your own Bacs facility.
Make paying easier for everyone else. Send each invoice with a payment link the client's accounts team can pay from their banking app, and give each client unique bank details so payments match without anyone checking references. Payouts come every weekday, in full, with the fee invoiced separately, so pay by bank money reaches you the same day and bank transfers two working days later. On an £870 invoice, a bank payment costs £4.20 (1% + 20p, with the percentage capped at £4).
Chase from the day after the due date. A polite reminder the day after the due date is easier to send than a stern one a month later, and Adfin's AI Customer Agents can do that over email, SMS or WhatsApp within rules you approve, while you pause chasing for any client you'd rather handle yourself.
None of this is financing. Adfin collects payments; it doesn't advance money against invoices.
Common questions
Can a temp agency delay paying workers until the client pays? No. An employment business can't withhold a temp's pay for work done because the client hasn't paid.
What is a normal payment term for temp invoices? There's no single standard. Terms vary by client and some large hirers push for much longer, so weekly invoices on short terms keep the gap smallest.
How much does invoice finance cost for a recruitment agency? Funders rarely publish rates. Broker data puts typical service fees at around 0.8% to 3.0% of turnover, plus a discount charge on the money you draw.
Am I responsible if a client doesn't pay a factored invoice? Usually, yes. Under a recourse facility, the agency is liable if the client doesn't pay.
Can I put temp clients on direct debit if their hours change every week? Yes. A direct debit mandate isn't tied to a fixed amount, so each collection can be the amount on that week's invoice, as long as the client gets advance notice.
Can I charge interest when a temp client pays late? If the client is a business, yes. Statutory interest is 8% above the Bank of England base rate, currently 11.75% a year.
Sources
- legislation.gov.uk - The Conduct of Employment Agencies and Employment Businesses Regulations 2003, regulation 12 (accurate as of October 2026) https://www.legislation.gov.uk/uksi/2003/3319/regulation/12
- British Business Bank - Invoice finance (accurate as of October 2026) https://www.british-business-bank.co.uk/start-your-journey/finance-finder/invoice-finance
- REC - REC responds to new package on late payments (accurate as of October 2026) https://rec.uk.com/our-view/news/press-releases/rec-responds-new-package-late-payments
- Spark Finance - UK Invoice Finance Rate Index (accurate as of October 2026) https://www.sparkfinance.co.uk/data/uk-invoice-finance-rate-index
- Adfin - Getting started with direct debits (accurate as of October 2026) https://support.adfin.com/en/articles/10192945-getting-started-with-direct-debits
