There are typically two sources of costs when evaluating a payroll funding relationship. The first source is the discount rate (think of this as interest rate) and the second is fees. Fees can vary wildly and may include transaction fees, lockbox fees, application fees, etc. If you see these fees in your agreement, move on and find a more straightforward funding provider.
In regards to discount rate, pricing can range from under 1% of the face value of an invoice to upwards of 5%. Rates are determined by the staffing company’s volume of business, the credit quality of its customers, and the length of time it typically takes for customers to pay.
As an example, the average staffing company billing $850,000 a year with customers paying in 31.3 days paid a discount rate of 2.76% on the face value of their invoice. So for a $10,000 invoice that was outstanding for 31.3 days, the staffing company was charged $276.
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