Accounts receivable factoring can enable your staffing company to grow without experiencing the cash crunch that can derail expansion efforts. Let's look at a scenario so you can observe how this works. First, let's assume you own a relatively young staffing company, but you are growing steadily. You could consider a bank loan to fund your growth, but that is unlikely unless you have a long-term track record of proven success. The bank is not going to lend to you based on future potential, but on the past history of financial stability. You also need to keep your debt-to-equity ratio in check and a new loan can alarm investors or current financiers.
For our purposes, let's assume you have built a solid infrastructure and your customer base is growing gradually, so you haven't felt a huge cash flow crunch yet. Now, you have a new opportunity you want to pursue. You'll need to hire 50 temporary workers for the contract, but you won‚Äôt get paid for 30 days. Do you have the cash in reserves or excess cash flow to fund this growth opportunity? If your company is relatively new, odds are, you don‚Äôt. During those first 30 days of waiting, you will still need to meet payroll each week for your old workers, and the workers associated with the new contract. Plus, you have to pay your normal operating expenses, including rent, utilities and advertising.
Here's how factoring your invoices can solve your problem. Once you create the invoice for the 50 new workers, you can sell it to a factoring company at a discount. Or, if you choose, you can factor some of the invoices from your current customers. Either way, you'll receive about 90% of the invoice upfront. The remaining 10% will be held in reserve and forwarded to you as it is collected, less the 0.5% to 3% for the factoring fee. When all is said and done, you will receive payment on 97% to 99.5% of your invoice. But you will have 90% of that money in your pocket within 24 to 48 hours of submitting the invoices to the factoring company.
If you prefer, the factoring company can manage the accounts receivable process for you. Some even offer credit protection, meaning they pay you if your client goes bankrupt or fails to pay the invoice. This enables you to continue your growth efforts by freeing you to find new clients and workers.
Some think that factoring is for struggling companies. This is simply not the case. Many times start-up and young staffing companies use factoring to fuel rapid growth or established staffing companies use the factoring cash flow to take advantage of new opportunities for expanding market share.
If you have any other questions about the process or want to apply for factoring please sign up today!
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