A growing economy lifts all boats, but staffing companies, in particular, can thrive on the increasing demand by companies to outsource their hiring. However, as with any type of business that experiences spikes in customer demand, staffing companies are prone to capital shortfalls, which can hinder their ability to grow.
Payroll funding for staff can be especially challenging for staffing companies that often have to wait up to 60 days for payment from a new customer while having to pay salaries, employment taxes and other expenses associated with adding staff. If they don’t have enough working capital, they can’t afford to take on new customers, making it difficult to grow their business.
So, where does a growing staffing company turn to keep working capital flowing while adding new customers? Traditional bank financing is typically out of the question for any business without established credit or assets and more predictable cash flow. For many smaller businesses, taking on debt is not a practical solution anyway. But, until they have the time to build up a cash reserve of their own, staffing companies need a reliable source of payroll funding for staff.
The Payroll Funding Solution
For staffing companies, the solution for payroll funding for staff is sitting right on their computers in the form of unpaid invoices. As long as a staffing company is working with reliable companies with a track record of paying their invoices on time, its invoices can be exchanged or “factored” with a factoring company for a quick infusion of cash.
Here’s how it works:
A staffing company is sitting on some invoices with 30- to 60-day terms but it needs a cash infusion to meet its payroll for recent staff hires. The company establishes an account with a factoring company and submits the invoices it wants to factor. The factoring company does a quick background check on the staffing company (no credit check) and reviews the invoices. Factoring companies like working with staffing companies in particular because their invoices are based on hours, which are fairly indisputable when it comes time for collection.
After performing due diligence on the customers being invoiced – to determine the customer is reliable and creditworthy – the factoring company direct-transfers up to 90% of the invoice value to the staffing company, which can use the funds as working capital. When the invoice is paid by the customer under normal terms, the factoring company then direct-transfers the 10% balance, less factoring fees, which can range from 1% to 3% per month.
With an established factoring account, the staffing company can continue to submit invoices as needed for payroll funding for staff.
Why Payroll Funding is Ideal for Staffing Companies
Staffing companies must have a steady flow of working capital if they want to be able to continuously add new customers and the timing is not always up to them.
When presented with the opportunity for a new contract, if the money is not there, they can’t take on the new customer. Most customers expect payment terms of 30- to 60-days. If the staffing company adds staff for a new customer, it must be able to pay them starting within a couple of weeks of hiring. With payroll funding – or factoring – it can invoice the new customer weekly or bi-weekly and have the cash available to meet payroll.
In addition to growing their business while meeting their obligations, the advantages of payroll funding for staffing companies are numerous:
- Obtain funding without established credit or assets
- Receive funding within days or even hours after submitting invoices
- Save time and resources by turning responsibility for collection over to factoring company
- Does not add debt to your balance sheet
- Allows you to offer competitive terms to your customers
- Control funding costs by factoring invoices only when needed
- The amount of funding can increase as the business grows
- Allows the staffing company to build its own cash reserve and prepare for traditional bank financing
Working with the Right Payroll Funding Company
Factoring has been around for centuries, so it can be trusted as a viable source of capital. But, for staffing companies, it is important to work with a factoring company that understands the nuances and demands of payroll funding for staff. A factoring company has the customer service infrastructure to make the process as easy as possible, so you can focus on growing your business. Other factoring companies with extensive payroll funding experience include TCI Business Capital and Bayview Funding.
We invite you to use this directory to browse payroll funding companies in your state.