If your staffing company struggles to pay its bills each month because it’s waiting for customers to pay outstanding invoices, you might consider staffing factoring.
Also known as payroll factoring, this financing option helps keep the cash flowing when the capital well otherwise might dry up.
What is Payroll Factoring?
Payroll factoring is a method some staffing companies use to continue to pay their employees on a weekly or monthly basis and have enough left over for other bills. A small or growing staffing agency needs lots of cash on hand, but waiting around for invoices to get paid can be risky. This process could take weeks or months. And the bills don’t stop coming.
Some companies turn to staffing factoring to avoid the hazards of running out of money. The company sells its invoices for an up-front advance on the full amount due. An advance typically ranges between 80% and 90% of the total amount.
Payroll factoring can be quick: A factor can send out funds within a few days. A standard payroll loan is the other option for companies short on cash, but this route takes up to a few months to come through.
Staffing Factoring: How It Works
Payroll factoring allows small businesses to get fast funding for their outstanding invoices, so they aren’t left twiddling their thumbs for up to 90 days. Five basic steps go into invoice factoring:
- Send your customer the invoice. You must send the invoice directly to the customer, even if you plan to factor it. The repayment period must be 90 days or less to work as a factor.
- Appoint the invoice to the factoring company. You must designate that this is an invoice to factor. If you have agreed to the more expensive method of spot factoring, you can select which of your invoices to factor. Otherwise, you have signed up for conventional factoring, which means that it will factor all of your invoices.
- You receive the advance. After being appointed the invoice, the factor will pay you a cash advance. The percentage of the total invoice you receive will depend upon the terms of your factoring agreement.
- Your customer pays the factor directly. In most cases, you no longer need to be the middleman. Your customer will pay the factoring company directly for the outstanding invoice.
- You receive the rest of the payment. Once your client has paid in full, you will receive the rest of the cash from the factor — minus their fees. The fees from the factoring company are called a discount. This fee depends on the agreement but can be anywhere from 0.25%-5% a week.
As you can see, invoice financing for staffing agencies is straightforward. Indeed, companies pay a fee to receive this service, but they secure peace of mind and quick funding.
You can take a cash advance to pay employees, invest in marketing, or hire new people.
Invoice Financing for Staffing Agencies
A temp agency doesn’t get paid until it fills a job position, and that employee has worked at the company for an amount of time. That can lead to cash-flow issues.
Staffing companies have a lot of expenses on their plates, such as marketing for new positions, payroll for their employees, office space and more. All these bills can leave a staffing company in a bind amid a cash crunch.
A staffing agency can go to a conventional bank for a loan, but that can take weeks or months to secure and often requires qualifications that a new business may not have (such as a high credit score). Staffing factoring offers a quicker, more efficient solution. You can receive the funding within days. Plus, since the company is mostly dealing with your customer — the company paying the invoice — your company might not need an established credit history.
Payroll Factoring Companies
These 3 payroll factoring companies provide great options for companies looking into the service. Each has its unique advantages and disadvantages, so take a look at all of them before choosing.
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Allegiant Business Finance is a payroll factoring company that can factor between $30,000 and $3 million in account volume. It provides an advance of up to 90% of the total invoice. To get you your cash, it uses a lockbox and ACH client payments to speed up the process. Your funds can be transferred to your account via Electronic Funds Transfer in a matter of hours and within 24 hours.
To qualify, you must meet the following criteria:
- You must have customers that are other businesses or governments
- Your customers must pass a credit check
- Your company must not be in financial or legal trouble
Allegiant can help your company to receive fast funding and ease the burden of paying your employees and other expenses.
Online lender BlueVine Capital provides funding for staffing agencies on invoices of between $5,000 and $5 million. Whether you have a small or large invoice total, BlueVine could be the right choice for you. It can approve your application in as little as 24 hours, so it is incredibly efficient. Plus, they advance up to 90% of your invoice.
To qualify for a loan through BlueVine, you need the following:
- A business-to-business (B2B) company
- A credit score of 530 or higher
- A company in operation for at least 3 months
- $100,000 in annual revenue
- 3 months of bank statements
If you’re applying for $250,000 or more in funding, BlueVine may ask for further information. BlueVine offers discount rates as low as 0.25%. The company operates with spot factoring, so you decide which invoices get factored and which don’t.
Paragon Financial Group began factoring for staffing companies in 1994. It offers up to 90% of the invoice as a cash advance at rates the company describes as competitive. It can take as few as 24 hours to 48 hours to start the process and get funded through Paragon. You can get your cash the same day you send the invoice.
To factor with Paragon, you’ll need:
- A B2B or business-to-government company
- Creditworthy customers
- Invoices due in 60 days or less
Additionally, Paragon offers credit checks as part of its services. They’ll check potential customers’ credit reports and let you know if they are worth your time and effort.
A Final Word on Staffing Factoring
If your staffing company is struggling to pay its bills even though it’s bringing in plenty of clients, consider staffing factoring as a financing option. A factoring company can make your business run smoother and help you seize opportunities as they arise.
Best of all, it’s not a loan. Staffing factoring can get you the money you need to keep your company moving forward in as little as a few hours.