Finding the Best Provider: Questions to Ask

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.

“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

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

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

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

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

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

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.

Immediately upon receipt.

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.

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.

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.

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

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.

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.

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.

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

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.

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

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.

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

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

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

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

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

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