Finding the Best Provider: Questions to Ask

When selecting a financing partner, it is crucial to invest the time upfront in order to choose the best Payroll Funding provider for your business. In order to assist staffing companies in their efforts, PayrollFunding.com has developed a questionnaire designed for owners as they evaluate staffing finance companies.

Ready to find the right staffing finance provider for your business? Click here, fill out our form, and we’ll help get you started today.

How long has your financing company been in business?

What You're Looking For

While the length of time a financing company has been in business is not always a barometer for quality, it’s important to find a financier that has a proven and stable operating history.

Red Flags

Start Ups. There are few barriers to entry for payroll funding providers which unfortunately means a number of under-qualified partners. You don’t want your financing partner to go out of business and put you out of business in the process.

How much staffing industry experience does your financing company have?

What You're Looking For

Payroll funding is also referred to as factoring, A/R financing, invoice financing, etc. Seek out a financier that is focused and committed to working with staffing companies.

Red Flags

All financiers will claim staffing industry experience. However, many will not cater to the staffing industries unique needs. Do they have case studies, blogs, or evidence of their commitment to the industry?

What are your funding or lending limits for a staffing company?

What You're Looking For

An answer. Whether it’s one hundred thousand dollars or one hundred million dollars, all financing companies have a limit. If your company grows past that limit, there is likely a contingency plan, but at this point you simply want the financing company to be open and honest with you.

Red Flags

“We don’t have a limit. We can do it all.” This is simply untrue. Everyone has a limit and you should push on sales people that try and state otherwise

What are your funding limits for each staffing company customer?

What You're Looking For

Similar to the answer above, you want your funding provider to outline how credit limits are established for your staffing business’s clients.

Red Flags

Ambiguity. Are they unclear? Is there no process in place? If so, ask to speak with their underwriter or the person making credit decisions.

How is my credit line established?

What You're Looking For

In payroll funding, your credit limit should be based on the credit strength of your customer and your business’s projected revenue.

Red Flags

Traditional underwriting criteria like operating history, profitability, ratios, etc. don’t allow your business to benefit from payroll funding’s greatest attribute – flexibility.

How quickly is my payroll funded?

What You're Looking For

A best in class payroll funding provider will ensure funds are in your account 12 – 24 hours after you’ve financed your payroll.

Red Flags

Two to three days. If you’re funding your payroll with an independent financing company as opposed to a bank, these funds can take longer to clear. Don’t forget, any wire fees will be passed on to you, so ask about ACH fund transmission.

How quickly are payments from my customers applied to my balance?

What You're Looking For

Immediately upon receipt.

Red Flags

Any clearance days cost you time and money. Again, payroll funding with a bank or with a provider that has a close relationship with a bank reduces holding periods and interest.

How often are the funds in my reserve account distributed?

What You're Looking For

When you finance a receivable or payroll, typically 10 - 20% of the face value is held in reserve. You want a payroll funding partner that will release the reserve immediately when payment associated with that receivable or payroll is received.

Red Flags

Many funding companies hold the reserve amounts associated with a receivable or payroll until the end of the week and in some cases the end of the month. For staffing companies, this policy can cause significant strain on cash flow.

Where do you get your funds?

What You're Looking For

The financier has a direct source of funds and lends those funds to you (banks or established financiers lending their funds to you).

Red Flags

The financier borrows money. Whether they’re borrowing from a bank or private investors these costs are passed on to the staffing company. Even worse, the availability of these funds is not guaranteed.

How will you interact with my customers?

What You're Looking For

Honesty. In all payroll funding relationships, there is interaction between the financier and the staffing company’s customer at some level. Clarity, justification, and confidence in a payroll funding provider’s process is crucial.

Red Flags

Heavy handed responses and unclear responses are equally troublesome. If the financier is avoiding the question or claims there is no interaction, watch out. Similarly, good financiers understand it’s a partnership and not an adversarial relationship.

Is any part of your operations outsourced to third parties?

What You're Looking For

No. Everything from sales, to credit, to accounts receivable management is in house.

Red Flags

Yes. Some funding providers, may utilize lending “platforms” that are really a third party servicer (i.e. BusinessManager). Ideally, most staffing companies prefer to work with full-service shops rather than those that may outsource crucial practices and processes.

What reporting will I have access to?

What You're Looking For

Direct access to your account statements and open invoices via an online platform is a must.

Red Flags

Reports are provided on demand and as needed. This leaves the financing party in a position of power and more often than not leaves customers in the dark.

What are all the fees associated with your financing?

What You're Looking For

Interest and/or discount fees only. The more straightforward the pricing structure, the more predictable the financing costs and cash flows.

Red Flags

Any additional transaction fees, lockbox fees, service fees should be red flags. Origination fees and termination fees can sometimes be negotiated.

What’s the term on your typical contract?

What You're Looking For

One year or less. If the financier requires a two year commitment, keep looking.

Red Flags

Two years or more. Flexibility is the name of the game. Don’t lock yourself in needlessly.

What is your advance rate?

What You're Looking For

Staffing has high cash needs and lower margins. A 90% advance rate is a must.

Red Flags

Anything less than 90% is a sign that the financier is not prepared to serve the staffing industry.

Am I required to utilize any additional back office products or services?

What You're Looking For

No. The payroll funding provider specializes in financing and will allow the staffing company to work with other payroll processing, bookkeeping, and reporting vendors.

Red Flags

Many payroll funding companies require the use of additional back office services. These “full service” offerings can be attractive, but the payroll processing and reporting can be of lesser quality, may increase funding costs, and in some cases makes the staffing company a captive of the payroll funding provider.