Receivables Factoring
Giving Staffing Agencies A
Powerful Competitive Edge

Whether you're a start up or a multi-million dollar operation, receivables factoring provides your staffing agency stable cash flow for meeting payroll and operating expenses and an optimal business financing platform for future growth.

Operating a staffing agency is challenging enough without having to deal with constant cash flow problems. While you are busy signing on new clients and recruiting quality staff that will meet their expectations, the last thing you need is the never ending worry about how you will meet payroll and handle your other expenses.

For many staffing agency owners, cash flow problems are chronic, representing a continual threat to the survival of the business. This is particularly true for start-ups or rapidly growing agencies. While most commercial clients will be more than happy to use your staff, many will take their time paying their invoices, perhaps as long as 60 days. Unfortunately, delaying payments to service vendors is a tactic some companies are using with increasing frequency to deal with their own cash flow issues brought about by our tough economy.

In the meantime, your agency is on the hook for salaries, taxes, benefits and overhead.

Naturally, most agency owners think a business line of credit or bank loan is the answer. In today’s climate, qualifying for these forms of traditional business financing is very difficult, especially staffing firms that have no hard collateral. Bank financing is now generally available only to agencies with a solid performance record, a seasoned management team, and at least some collateral.

Unless you manage to get external funding, your staffing agency’s growth will always be limited by your business capital. However, receivables factoring is an ideal funding option that will help solve your problem without the debt and hassles inherent in bank loans.

How Can Receivables Factoring Help My Agency?

The lingering effects of the most severe economic meltdown since the Great Depression and continued uncertainty about the future have made many companies reluctant to hire permanent employees.  Because of this, the outlook for the staffing industry is bright, since temporary staffing is the obvious choice to meet their personnel needs both now and into the future.

For a busy staffing agency, cash flow problems are rooted in the time difference between the payroll cycle and invoice payment: Employees must be paid now, but clients want to pay later. Receivable factoring allows you to bridge this gap with regular advances on your client invoices, giving you a stable cash flow and the funds to not only meet your current obligations, but also to finance the staffing of new clients.

If sales are increasing rapidly, booking additional profits will not be enough to sustain the growth. It is not the lack of profits that crush many a staffing agency. It is poor cash flow. Factoring financing is much easier to get than business line of credit or loan. Because factoring companies view your accounts receivable from quality clients as good collateral, they are willing to advance you funds against open invoices, making business factoring a very easily obtainable and relatively simple form of business financing.

Most staffing companies seek the short-term benefit that receivables factoring provides in generating cash to pay current expenses. Often overlooked is the much bigger advantage that the agency with a factoring program has over its non-factoring competition in bidding for larger contracts. Because receivables factoring is tied directly to invoices, the amount of funding available to your agency will grow automatically as you take on more staffing clients. When compared to a loan or business line of credit with a fixed credit limit, this unlimited funding available with accounts receivable factoring makes it a superior business financing tool for staffing agencies with good growth potential.

How Does Receivables Factoring Work In A Staffing Agency?

Business factoring for a staffing company is a very straightforward process:

• Your customer approaches you with a staffing request. If it’s a new customer, the invoice factoring company performs a credit check on the company and if approved, determines an advance rate for that customer.
• Your staffing firm provides the service and issues an invoice directing payment to a lock-box address maintained by the invoice factoring company. You provide a copy of the invoice to the factor with any required back-up documentation (e.g., time sheets).
• Upon receipt of the invoices, the factor will electronically advance your funds within hours.
• Your customer sends payments directly to the invoice factoring company lock box and the factor remits the difference (reserve) between the collected amount and your advance, less the factoring service fee.

For an additional fee, several factoring companies that specialize in staffing can offer you back-office services for invoicing, payroll processing, and tax deposits. Many staffing agency owners view the reduction in overhead and the stress associated with performing these time-consuming tasks in house as well worth the fee, allowing them to focus their resources on developing the agency and marketing for growth.

What Does It Receivables Factoring Cost?

Factoring companies do not loan money; rather, they purchase your company’s invoices at a small discount. The “discount rate” will normally encompass the cost of the money you use and the fee for the collections and processing service.
In general, the discount rate your agency is offered will be affected by anynumber of things, including:

• Your average monthly factoring volume
• The average size of the invoices sold
• Invoice terms and the length of time until they are paid in full
• Your contractual commitment to the invoice factoring company
• The number of customers whose invoices you factor and their creditworthiness

Receivables factoring is an ideal, debt-free business financing solution for seasoned and new staffing agencies alike. Consider using this powerful tool to help propel your business to the next level.