Financing Challenges in the Staffing Industry

With increased demand comes the need to meet payroll expectations of their expanding temporary and contract employees. As a Staffing Agency, you may find yourself without enough working capital to hire the needed employees just to keep up with your clients’ needs. Staffing is a service business with very few hard assets associated with it. Your agency’s greatest asset is the pool of labor available to deploy to a client’s business. Lenders cannot take a lien on people! The only other large asset available to a staffing agency is its accounts receivable. Lenders typically consider accounts receivable “soft secured” loans and will look to the agency owners’ assets as collateral. If your agency’s growth has outstripped your personal asset values then capitalizing on growth becomes problematic without working capital availability.

Invoice Factoring for Staffing ­and Payroll Funding

Payroll funding can be critically short for the growing agency due to “reversed cash flow”. The agency offers 30, 60 and sometimes 90 day terms to its client while the agency is expected to pay their employees either weekly or bi­weekly. Pay today and receive payment tomorrow – the cash flow is “reversed”. The key is to find a partner that is willing to help the agency today and wait for that payment tomorrow. Finance Factoring (more commonly just called factoring) for payroll funding can be the much needed answer for your growing business.

There’s a reason factoring is the preferred financing method for many Staffing Agencies of all sizes – immediate cash flow. Startup companies to long term established companies, regardless of their credit ratings, assets or holdings, are all able to benefit from factoring. Because a factor purchases the agency’s invoices (usually within 24 ­- 48 hours of invoicing), the much needed working capital is available before payroll and employee expenses are due. The factor fixes the “reversed cash flow”. As an additional benefit, factoring is not a debt for your company because the invoices are purchased, not borrowed against. Therefore, it is not your company that needs to meet qualification standards such as a bank would demand, but rather the factor looks to your clients and their creditworthiness. 

How Invoice Factoring for Staffing Works in the Staffing Industry

Typical advance rates are between 80% and 90% of the face value of the invoice with the advances being made within 24 ­- 48 hours of the agency submitting the invoices to the factor. The remaining 10% ­- 20%, less the factoring fee, is remitted to the agency upon payment by the agency’s client. The application process is less involved than a bank application as the assets used for the financing are the accounts receivable not requiring appraisals like a real estate loan. The initial setup, based on your client’s business credit, can often be completed within a few days. The factor wants you to grow and provide you cash which is the catalyst to Staffing Agencies’ growth. 

Ready to see how invoice factoring can be the growth engine your staffing agency needs?

Unlocking your largest asset, your accounts receivable, is the key to unlocking the potential of your business