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.
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.