Labour hire and recruitment agencies pay workers weekly but wait weeks for clients. How to size the gap, what funders check and which facility fits.
Business Owners Hub
Labour Hire Finance · Payroll Funding · Working Capital
A labour hire agency can grow itself broke: every new placement adds weeks of wages paid before the client pays, so the faster you grow, the bigger the gap you have to fund. Here is how to work out that gap, what funders check, and which facility usually fits.
Quick Answer
Labour hire and recruitment agencies pay workers every week but are paid by clients weeks later, so the working capital they need grows with every placement, and most fund it with invoice finance, payroll funding or a line of credit sized to the gap. Work out the gap first, from your weekly wage bill and your clients' real payment times, then match the facility to it so your cashflow keeps pace with growth.
Also called: labour hire finance, staffing agency finance, recruitment agency funding. They describe the same need; payroll funding is the product name funders use for invoice finance paired with pay services.
Why do labour hire agencies run short of working capital?
Labour hire agencies run short of working capital because they pay their on-hire workers every week while clients typically pay the agency's invoices weeks later. The agency carries the full wage bill in between. The pattern is the same in almost every book we see: the worker is paid on Friday, the timesheet is invoiced the following Monday, and the client pays on its own terms, which commonly run to 30 days from invoice or longer with larger clients.
That timing turns growth into a cash problem. A new client or a new site means more workers on your payroll from week one, while the matching receipts arrive a month or more later. The gap grows with every placement, which is how a busy agency ends up growing itself broke: profitable on paper, short on Friday.
This is different from a one-off emergency. If you are trying to cover a single missed payroll, the payroll gap finance guide covers that situation. This insight is about the standing gap a labour hire or recruitment business carries every week it trades, and how to fund it on purpose. Agencies sit squarely within the business owners we work with on the Business Owners Hub, and the wider options are set out in the working capital loans guide.
How do you work out the working capital gap for a labour hire agency?
You work out the working capital gap for a labour hire agency by multiplying your weekly wage and on-cost bill by the number of weeks between paying workers and being paid by clients, then adding a buffer. In words, the formula is:
- Weekly bill. Gross wages for every worker on hire, plus super, payroll tax, workers compensation and any allowances you pay ahead of invoicing.
- Weeks out of pocket. Count from the day you pay a worker to the day the client's payment actually lands. Use what clients really do, not the terms on the invoice.
- Buffer. Add a margin for slow payers, a new client starting, or a peak week. Around two weeks of the wage bill is a common starting point, though it varies by book.
Take an illustrative agency with 20 workers on hire at approximately $1,500 a week each in wages and on-costs. Its weekly bill is around $30,000. If clients typically pay about five weeks after the worker is paid, the agency has roughly $150,000 out at any time, and a two-week buffer takes the need to around $210,000. These are example numbers only; your own book sets the real figure.
| Workers on hire | Weekly wages and on-costs (illustrative) | Weeks until the client pays (example) | Gap to fund before buffer (illustrative) |
|---|---|---|---|
| 10 workers | Approximately $15,000 | Around 5 weeks | Approximately $75,000 |
| 25 workers | Approximately $37,500 | Around 5 weeks | Approximately $187,500 |
| 50 workers, larger clients on longer terms | Approximately $75,000 | Around 6 weeks | Approximately $450,000 |
The table shows the point of the formula. Doubling the workforce roughly doubles the gap, and winning bigger clients on longer terms pushes it up again. A facility sized for last year's book can be too small within a few months of steady growth.
Does your labour hire licence matter to a funder?
Your labour hire licence matters to a funder because an unlicensed or suspended provider puts the client relationships, and therefore the invoices being funded, at risk. At the time of writing, Labour Hire Authority Victoria says every labour hire provider in Victoria must be licensed. It keeps a public register, and hosts can follow providers to receive alerts when a provider's licence status changes.
Because that register is public, funders can and do check it. A funder advancing against invoices to Victorian hosts will usually want to see a current licence before the facility starts and may monitor it while the facility runs. Queensland, South Australia and the ACT run their own licensing schemes, so check the regulator in each state where your workers are placed.
Licence conditions, renewals and objections are questions for your state's labour hire regulator, not your funder. What the funder needs is simple evidence that the licence is current and that nothing on the register suggests trouble.
How do payroll tax, super and other on-costs change the gap?
Payroll tax, super and other on-costs widen the gap because they are paid on top of wages, often before the client pays, and they scale with every worker you place. From 1 July 2026, employers must pay super with each payday, and it must reach the employee's fund within 7 business days after payday. That is the ATO's position in About Payday Super (last updated 10 August 2026, read 29 October 2026). For an agency, it means super now leaves the account within 7 business days of payday, at the time of writing, rather than sitting in the bank until a quarterly due date.
Before Payday Super, many agencies had an informal float: superannuation guarantee money collected through the quarter and paid later. That float has gone. Any gap calculation built before July 2026 likely understates the weekly cash need and is worth redoing.
The other on-costs follow the same pattern in general terms:
- Payroll tax. Wages paid to on-hire workers generally count toward the agency's payroll for state payroll tax, so the liability grows with the book.
- PAYG withholding. Tax withheld from workers' pay is remitted to the ATO on the agency's schedule, whether or not clients have paid.
- Workers compensation. Premiums are typically set on declared wages and the risk class of the work, so a shift toward higher risk sites can raise the cost.
How each of these applies to your on-hire workers is a question for your accountant and your state revenue office. For the gap formula, the rule is to include every on-cost you pay before the client pays you.
What do funders check before funding a labour hire business?
Funders check that each invoice reflects work genuinely done, that clients are reliable payers, and that no single client or dispute can sink the book. From the underwriter's seat, a labour hire invoice is only as good as the evidence behind it, and a signed timesheet is the invoice's proof.
- Timesheets signed by the client. Funders want client approval of hours, whether on paper or through a time and attendance system, before an invoice is funded.
- Client contracts and terms. Written agreements with each host, the payment terms, and any clauses that let the client withhold or set off payments.
- Debtor concentration. How much of the ledger sits with your largest client. Funders often cap funding against any one debtor; the debtor concentration limit insight explains how those caps work.
- Disputes and credit notes. A pattern of disputed hours or credit notes tells a funder that invoices may not convert to cash in full.
- Tax and super position. Unpaid payroll tax, PAYG or super can effectively rank ahead of the funder, so arrears are a common sticking point.
The ledger itself is read closely too; what lenders read in a debtor book walks through that review. Having these documents ready before the first conversation usually shortens the process.
Should a labour hire agency use payroll funding, invoice finance or a line of credit?
A labour hire agency should usually match the facility to the size and shape of its book: payroll funding or invoice finance for a growing temp ledger, and a line of credit for a smaller, steadier one. Each moves with the gap in a different way.
- Payroll funding. Invoice finance paired with pay services. The funder advances against approved invoices and, in many arrangements, also processes pay, super and tax for on-hire workers. It suits agencies that want the back office handled as well as the cash.
- Invoice finance alone. The facility advances a share of each approved invoice, so it grows automatically as placements grow. It suits agencies that run their own payroll and want funding that scales with the ledger.
- Line of credit. A set limit you draw and repay. It suits smaller or steadier books where the gap is predictable, and it does not need invoice-by-invoice administration. Many are unsecured and supported by a directors guarantee.
Some agencies combine an invoice facility for the temp book with an unsecured business loan for one-off needs. Victorian agencies weighing invoice finance can also read invoice finance in Melbourne and Victoria, and the broader lender landscape sits in the working capital loans guide. Costs, advance shares and limits vary by lender and are indicative until a funder has seen your ledger.
If you want to see which shape fits your book, you can check eligibility before committing to a structure.
How do permanent placement fees and guarantee periods affect funding?
Permanent placement fees affect funding because they are one-off invoices carrying a guarantee period, during which the fee may be refunded or the role replaced, so funders treat them as less certain than temp invoices. Temp margin, perm fee: the first repeats every week against hours already worked; the second depends on a candidate staying in the role.
Temp margin
- Invoiced weekly against signed timesheets
- Work already done when the invoice issues
- Repeats while the placement runs
- Usually fundable through invoice finance or payroll funding
Perm fee
- One invoice per placement
- Refund or replacement clause during the guarantee period
- Often lumpy from month to month
- Often excluded or discounted by invoice funders until the guarantee passes
What usually happens: many funders exclude perm invoices from the funded ledger, or fund them only after the guarantee period ends. Agencies with a strong perm desk often fund that side with a line of credit or working capital loan, and keep invoice finance for the temp book. Your debtor finance arrangement should state clearly how perm invoices are treated, so a refund does not surprise either side.
Labour hire and recruitment agencies carry a working capital gap that grows with every placement: wages and on-costs go out weekly, clients pay weeks later, and Payday Super has removed the old quarterly float. Work out the gap from your real weekly bill and your clients' real payment times, have timesheets, contracts and your licence ready, and choose payroll funding, invoice finance or a line of credit by the size and shape of your book. Treat perm fees separately from the temp ledger.
Key takeaway: size your facility to the gap formula, weekly bill times weeks out of pocket plus a buffer, and redo it whenever your book grows.Frequently Asked Questions
A labour hire company can use debtor financing, and it is one of the most common ways agencies fund weekly wages against client invoices. The funder advances a share of each approved invoice and is repaid when the client pays. Signed timesheets, client contracts and a spread of debtors usually make approval smoother; the debtor finance guide covers how these facilities run.
Invoice finance for a recruitment agency works by advancing part of each temp invoice soon after it is issued, so the agency can pay workers before the client pays. The remaining balance, less fees, is released when the client settles. The funder reviews your ledger first, and what lenders read in a debtor book explains that review.
Payroll funding for recruitment agencies is invoice finance combined with pay services, where the funder advances against approved invoices and often also processes pay, super and tax for on-hire workers. It suits growing temp books. Smaller, steadier agencies sometimes use a business line of credit instead.
Funders typically do check your labour hire licence, because an unlicensed provider puts its client relationships and invoices at risk. In Victoria the licence register is public, so a funder can confirm your status before and during the facility. Victorian agencies can read more in invoice finance in Melbourne and Victoria.
Getting finance against permanent placement fees is possible but harder than funding temp invoices, because a perm fee can be refunded or the role replaced during the guarantee period. Many invoice funders exclude perm invoices or fund them only once the guarantee passes. Agencies often fund the perm desk with an unsecured business loan or line of credit instead.
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