The Ultimate Guide to Invoice Factoring for Staffing Companies
Financing payroll has never been easier!
Invoice factoring for staffing, also known as payroll financing or receivables factoring, is a type of funding for staffing companies to obtain immediate working capital from outstanding invoices, rather than waiting up to several months for invoice payments. This works to improve a staffing company’s cash flow; whether that cash flow is poor or going steady, payroll funding will make it stronger than ever. As a result of this improved cash flow, payroll funding offers staffing companies the resources to take on larger clients, meet greater and greater goals, minimize expenses and time spent managing technical aspects of the business, and much more. Perhaps for the reason that invoice factoring is the most flexible and helpful type of funding, many misconceptions exist about invoice factoring, for example that it is only used by struggling companies or that it will hurt a company’s reputation. Although a common reason staffing companies seek payroll funding is to cover basic expenses and meet payroll, invoice factoring is also used by many large and successful staffing companies to accelerate growth or just provide financial stability during already rapid growth.
How does staffing factoring finance payroll?
Financing for staffing companies has never been easier. Here’s how factoring works to fund payroll:
- Your staffing company applies for a factoring service. Approval is easy, and first-time accounts can get funding in days.
- Your staffing agency sells your outstanding invoices to a payroll funding company.
- You receive an immediate cash advance, up to 90%.
- The payroll funding company collects invoice payments from your clients, subtracts a small percentage, and returns the remaining money to you.
- Repeat as often as necessary, without having to reapply.
Why do staffing companies use invoice factoring for payroll funding?
A primary reason temporary staffing companies use invoice factoring for payroll funding is to thwart cash flow challenges. These challenges may include customers with long payment terms or who are tardy with payment, instability during a period of rapid growth, difficulty meeting payroll or covering basic expenses, or limited resources due to being new or to a slump in business. Another reason staffing companies choose to factor their invoices is that they may be ineligible for a bank-loan – whether it’s because they’re a new company or lack perfect credit. Another advantage of invoice factoring is that your staffing company can actually use the instant working capital to offer clients longer payment terms as a way to stand out from other staffing companies.
How does payroll funding differ from bank financing?
One way staffing invoice factoring is different from other forms of funding, including bank-loans, because it has the ability to grow as your company grows, as it simultaneously works to expedite that growth. Additionally, bank-loans can reject your staffing company based on experience, size, or credit, while almost all staffing companies can receive payroll funding, even with bad credit! This is because factoring companies care more about your clients’ credit than yours. Payroll funding is also much more flexible than bank financing, carrying none of the red-tape that bank-loans do. Payroll funding can be repeatedly used as much as you want, without having to re-apply, unlike a bank-loan. Payroll funding terms are negotiable, and don’t require you to take on debt. Lastly, the payroll funding application is much simpler than bank-loan applications, and doesn’t involve time-wasting complicated procedures.