What is it & How does it work?
Thousands of staffing companies across the U.S and Canada utilize ‘staffing factoring’ to make sure they are able to pay their employees on time each payroll period. This helps smooth cash flow regardless if payment terms from their customers are 10 days or 90 days. Staffing factoring specifically then, is how temporary staffing companies turn their outstanding invoices into cash by using invoice factoring companies. They do this by submitting invoices to the factoring company at the beginning of a payroll week for hours that their employees have worked. The factoring company verifies the work has been completed through timecards or other methods and then the factoring company advances funds based on the receivables.
How staffing factoring works
Typically a temp staffing agency will submit their invoices and timecards from the prior week to the staffing factoring company for funding. Then, the staffing factoring company will fund 85%-95% of the value of those invoices to the temp staffing agency. This often allows the staffing company access to funds the same day invoices were submitted to the factoring company, enabling almost instant cash flow as needed.
Once the customer pays the invoice, the staffing company will receive the remainder of the value of the invoice less the small fee the payroll funding company will take for providing the service. This ranges from company to company based primarily on how long it takes your customer to pay. Typical fees range from under 1% to 3% of the invoice value depending on a number of factors.
How to qualify for staffing factoring
Qualifying for staffing factoring is really quite straight forward. The two main things a factoring company wants to see when onboarding a new client is that the invoices are good and the customers have the ability to pay their bills. With a simple customer list, factoring companies can check with the credit bureaus to see if the customers’ credit is good and if they look likely to pay their bills. Staffing companies make great factoring candidates as they typically have signed time cards along with the invoices which proves that the work has been done. Outside of this, the factoring company just wants to see that you have a plan to stay in business. Meritus Capital does not require any particular credit score, time in business, or volume of business to qualify!
Benefits of partnering with a factoring company for a Staffing business:
- Access to the cash you need to make payroll each payroll period
As factoring gives a business owner the ability to gain access to cash the same day they create an invoice a staffing business no longer has to wonder if they will have the cash to make payroll. The staffing company can always receive the funding for the previous weeks hours worked and make sure that the money is in the account or sent to the PEO or payroll provider so that the workers get paid on time.
- Capital to grow as fast as a business can place
Temporary staffing is a capital-intensive business, with the bulk of that cost going to paying the temporary workers. As a staffing business grows so does the payroll costs, this can cause some staffing company owners to slow growth so that no payrolls are ever missed. Having a staffing factoring company gives the owner the ability to have continued access to capital at whatever rate of growth that is taking place. As long as the customers are good and credit worthy and the factoring company has given the business owner the needed availability, there is potentially for virtually unlimited growth.
- Years of experience in credit and collection
As a factoring company’s job is to purchase outstanding invoices, credit and collections are of the highest priority to them. Partnering with a company like this now gives you an experienced team that can help you make smart credit and collections decisions based on real world experience and access to much data.
- Get cash without adding crippling debt
A typical loan, though at the start can be very helpful can be a cause of stress as the repayments have to be regularly made. Since factoring is based on a business owners current AR balance, this is not an issue. As long as placements are being made, hours are being worked, new invoices are being created so to the working capital will be there. Factoring works much more like a line of credit which ebbs and flow with a business, not putting strain on a business’s cash flow.
- 24/7 online reports
Everyone has to keep a finger on the pulse of their business. For this reason, factoring companies provide 24/7 online reports so that staffing companies utilizing a staffing factoring companies always know the status of collections, their reserves and much more.
- Having a partner that is working for your success
As a staffing company grows so does the need for working capital, this creates a win-win scenario for the owner of the staffing company and the factoring company. For this reason, factoring companies are incentivized to enable growth of their staffing partners and are working for your success.
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If you are considering staffing factoring for your business, please check out our many articles here or please do contact us toll-free at 1-877-648-3709