What is Factoring for Staffing Agencies?
Factoring is a debt-free cash flow financing tool used by staffing agencies, temporary employers, and similar companies. It enables the agency to turn unpaid customer receivables into working capital, without waiting for customers to pay. Instead, the agency factors the invoice with a staffing factoring company, and they send an advance of 90% of the invoice amount (or more) to the agency on the same day for a small fee, called a factoring fee.
When can staffing agencies factor in invoices?
Staffing agencies can factor invoices on the same day they are generated and unlock working capital on the same day. While the customer may not pay for 30-60 days, the staffing agency still gets access to the money they’ve earned right away.
How does factoring help staffing agencies?
As mentioned previously, invoice factoring is a debt-free financing tool. So, one of the first ways it helps staffing agencies is by helping them speed up cash flow and giving them access to the working capital their business needs to operate without incurring debt.
Speeding up cash flow is the most common reason cited when factoring clients point to benefits, but it’s not the only one. Cash flow is the lifeblood of any business. When it’s constricted, the business doesn’t have the ability to operate efficiently or grow. Some of the other benefits of factoring for staffing agencies include:
Funding payroll and operations during busy and growth cycles
Payroll factoring (aka payroll funding) is another reason that staffing agencies typically turn to staffing agency factoring companies like Goodman Capital. Here’s why:
A unique aspect of staffing factoring is that staffing services and employee placements (whether temporary, contract or temp-to-hire) are the product. So in order to sell the product, staffing agencies and temporary employers have to invest a tremendous amount upfront in recruiting, screening, testing, hiring, onboarding, and so on, well before any corresponding customer payments come in.
By factoring in invoices as soon as they are generated, the staffing business can speed up the corresponding cash flow by weeks (or even months). This is critical for staffing and temporary employment agencies that are growing or that are ramping up for busy seasonal opportunities.
It might surprise you to know that staffing agencies can actually save money by factoring in invoices. This happens when the agency is able to negotiate fast-pay or cash payment discounts with its vendors and suppliers. The agency can factor invoices to unlock the cash needed to take advantage of these discounts, which may be well in excess of the factoring fee, which is the only cost of factoring for staffing agencies.
Growing and taking on new business more quickly
In order to grow, a staffing agency has to be able to take on new business quickly. Again, this requires an upfront investment, since to attract new staffing customers you have to be able to prove you’re already prepared to meet their demand for employees or temporary workers. You can unlock money to recruit, hire, and place new employees by unlocking the working capital you need to meet these expenses and early payroll expenses by factoring in unpaid customer invoices, retainers, and other receivables.
Likewise, if you want to take on bigger accounts. Your staffing agency can grow more quickly if it’s serving some big accounts instead of a lot of little ones.
How does factoring for staffing agencies work?
The process of factoring for staffing agencies is simple. Get approved to factor invoices, then factor invoices and unlock working capital the same day. The first step is the approval process, however, this shouldn’t deter you from applying.
When we approve your staffing agency for factoring services, we vet your customers, not your company. Your credit score isn’t an issue, and this type of debt-free financing is available to staffing agencies from the first day they open for business. The approval process typically takes just a couple of days, and then you can start factoring.
- Day One: Factor a customer invoice and get 90% (or even more) of the invoice amount as an advance
- Day 30-45-60+: Once your customer pays the invoice, get any amount held in reserve, less our factoring fee, which generally ranges from 1-10%, and which is established during the initial approval process (so you’ll always know what to expect)
Gain Access to the Capital You Need With Staffing Factoring from Goodman Capital Finance
That’s it! Your factoring fee is your all-in cost for this type of staffing agency financing, and there are no hidden fees. There are no application or approval fees, so if you’re wondering whether factoring for staffing agencies could serve your business well, don’t hesitate to reach out to us for a free, no-obligation quote, even if you’re already working with another staffing agency factoring company.