Invoice Factoring for Staffing Companies
(Read time 1-2 minutes)
The Contract Economy
American labor is undergoing a dramatic shift towards a temporary or contract workforce. The high cost of benefits for full-time employees (retirement, health care, taxes, etc.), act as a tailwind for the outsourcing movement. Instead of permanent positions, workers today are after shorter-term ‘gigs’. Many in Florida and California are getting their ‘side hustle’ on with the likes of Uber, etc. as contractors.
As a result, we’ve seen a dramatic rise in small staffing companies to help companies fill these positions quickly. This is especially true for hard to fill, ‘niche’ positions. The hardest to fill include skilled trades, truck drivers, sales reps, call center reps and teachers.1 But hotel and restaurant staff are also in high demand because of an improving economy since the financial crisis and a naturally high turnover rate in their jobs.
As long as these talent shortages exist, temp agencies can mark up their employee’s labor, a key source of staffing profitability. Next generation jobs, such as in I.T., enjoy higher markups than traditional staffing positions such as clerical and administrative.2 This is one reason accounts receivable factoring companies love to do business with staffing companies-high profit margins (often up to 10%).3
Invoice Factoring for Staffing & Express Temp Agencies
But there is a downside to all this profitability for temp agencies, cash flow shortages. The agency’s customers are often large commercial clients who often don’t remit payment for 60 days. This is obviously a problem since the temp employee is expecting their paycheck on a weekly or bi-weekly basis. Who would start a job if they knew they weren’t going to be paid for two months?!
So, the temp agency must front the cash until the commercial client pays. If the agency is flush with cash that may not be a problem, but there are many small temp agencies and staffing companies who face serious net working capital issues as a result. But there is a solution. Factoring invoices provides the payroll funding your small staffing company needs.
If your express temp agency is experiencing cash flow problems consider invoice factoring. Selling your outstanding invoices to a third party factoring company provides expedited payment. Once approved, the funding is typically completed same day (if done via wire transfer). A traditional small business line of credit which can take weeks or even months to complete, whereas applications from factoring companies generally takes just a few days.
If you have been turned down by a traditional bank for bad credit, there are options. With factoring, it is the credit worthiness of your invoiced clients that matters. Invoice factoring companies will run credit checks on your customers after receiving a schedule of receivables. Keep in mind that some factoring companies won’t start factoring receivables that are past 90 days old. And the vast majority will only handle business to business invoices (known as B2B). B2C factoring is a very niche market but there are some companies out there that will finance those receivables.
Invoice financing allows you to focus on running your business while a factoring company handles all the ancillary tasks such as contacting your clients for repayment in a soft manner. Staffing factors include Riviera Finance, Crestmark Bank, Bluevine and Fundbox. Request a free quote on accounts receivable factoring today.