How Can Payroll Factoring Help My Staffing Agency?
Staffing agencies of all sizes often face cash flow dilemmas. Temporary employees need to be paid every one or two weeks, but most customers only pay their bills every 30 to 45 days. Payroll factoring is one of the most convenient methods to accelerate receipt of customers’ payments and allows staffing firms to make payroll, cover overhead, or handle just about any other expense that arises. Additionally, by factoring their invoices, temp staffing firms are able to secure larger client accounts without the burden of extended payment terms.
According to a recent CBS Moneywatch article by Bruce Kennedy, staffing companies employed close to 3.3 million temporary and contract workers every week during the third quarter of 2014. This represented a 6% increase over the third quarter of 2013. With this significant growth seen by staffing agencies, the need for payroll factoring has increased substantially in order to keep up with rising demand for employment.
Following are some of the questions we address when working with prospective staffing factoring clients:
How does payroll factoring work?
Once the staffing agency has sent the invoice to their client, they then send the staffing factoring company a copy of that invoice along with copies of the time cards and any other documentation the customer requires in order to process payment. As soon as the factor receives copies of the paperwork, they deposit into the client’s bank account up to 95% of the invoice’s gross receivable value. The factor then awaits payment from the customer. As soon as payment is received in full, the remaining funds (less the factoring fee) are refunded to the client.
How much does payroll factoring cost?
Unfortunately, there is not a “one size fits all” response to this question. One variable that affects the factoring fee is the advance rate. When a client is able to accept a lower advance rate, this will typically help to reduce the factoring fee as well. Some of the other items that will impact the fee are the customers who will be factored, monthly volume that the client plans to fund, as well as the industry/niche in which the client specializes (if any).
What if I have poor credit?
Since factoring is primarily based upon the credit quality of the client’s customers, the client’s credit is not a major concern. In fact, under most circumstances, it is even possible to help clients who have experienced previous bankruptcies or tax liens.
Do you work with start ups?
Yes. Unlike a conventional line of credit, factoring does not require previous business experience. As long as invoices are being generated for work that has been completed, the client can receive same-day funding for their receivables.
Do I have to factor all of my customers?
No. We work with many clients who choose not to factor some of their clients (typically due to shorter pay terms).
Do I have to commit to a long-term contract?
No. We offer several different types of programs, including month-to-month factoring agreements.
For additional information, feel free to visit our Payroll Factoring page or Contact Us today for a discussion of your specific financial needs. Our staffing experts are standing by and ready to help. In most cases, we can have a new account established and ready to fund within 1-3 business days.