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frieght factoring

Staffing Factoring

Factoring is a sale of outstanding invoices at a discount to a third-party financing company, known as a factoring company or a bank. Factoring gives staffing agencies quick funding that can be used to:
  • Hire many seasonal workers in a short period of time
  • Monetize invoices in 2-3 - instead of 30 days - to make payroll on time
  • Offer competitive salaries and attract top talent

What is staffing factoring?

To operate efficiently, staffing firms and temporary employment agencies need working capital to cover recruitment, hiring, onboarding and payroll expenses. However, clients typically have 30 or longer net terms while payroll must be made every two weeks. To close the gap between cash inflow and outflow, staffing firms can rely on factoring.

Factoring entails the sale of accounts receivable at a discount to a third-party company, known as a factoring company or, simply, a factor. Alternatively, the receivables can be purchased by a bank. Using factoring, invoices can be monetized in 2 to 3 days.

The factoring company assumes the responsibility of collecting payments on the invoices it factors, either on a permanent or temporary basis – and keeps a small percentage of the total invoice amount as their fee. A factoring company can buy just a few of your invoices, known as spot factoring or all of them, known as whole ledger or full-turn factoring. To learn about the cost of factoring, please visit our Small Business Factoring page.

How does it work?

Staffing invoice factoring works in four simple steps:

  • The business provides a factor with a copy of the invoice that was sent to the client
  • The factor verifies the invoice and runs a credit check on the client
  • The factor advances a portion of the outstanding amount
  • Once the invoice is paid, the business gets the remainder minus the discount rate and any additional fees

Staffing is among the industries with the highest advance rate. Contact Business Factors today to get a quote.”

Advantages of staffing factoring

Benefits associated with factoring for staffing agencies include:

  • Obtaining working capital even if they face a challenging financial situation associated with lack of growth or having a limited credit history, for example. Factoring, unlike lending, relies on the creditworthiness of the agency’s clients, not its own
  • Financial freedom to hire many seasonal workers in a short period of time
  • The factor advances a portion of the outstanding amount
  • Ability to pay competitive salaries and attract top professionals such as software engineers and developers, database administrators, IT professionals, nurses, medical technicians, physicians and others

How much does it cost?

The fee that a factor charges for their services is called a discount rate. The discount rate depends on the dollar amount and number of factored invoices, credit quality of your clients and your industry, among other factors. On top of the discount rate, factors can charge fees associated with due diligence, termination of the contract, monthly minimums, etc. A part of the invoice can also be held back as a reserve. As such, the advance rate – which is what a business owner actually gets when the invoice is factored – ranges between 70% and 96%.

Once the invoice is paid, the reserve – minus the discount rate and other fees – is returned to the client. Staffing is among the industries with a high advance rate.

Fee structure varies by factor. Some may not hold back the reserve and not charge any other fees, aside from the discount rate.

Business Factors can help staffing agencies to monetize invoices in 2-3 days with competitive rates that work with any budget. We offer an online account management system and back office assistance.”

Below is an example of a factoring arrangement:

  • Invoice amount: $100,000
  • Advance rate: 90% or $90,000
  • Reserve: $10,000
  • Discount rate: Flat fee of 3% for the duration of the arrangement
  • Type of arrangement: Full recourse after 60 days

In this scenario, the client would only pay a one-time fee of $3,000, but the invoice would be charged back if the counterparty does not pay within 2 months.

Alternatives to factoring

There are several alternatives to factoring. They include asset-based loans, working capital loans, credit cards or merchant cash advance (MCA).

These options all share a similar benefit: provide sufficient working capital so that companies don’t have to worry about collecting on receivables and timing issues associated with incoming and outgoing funds.

Contact Business Factors for a quote and to learn more about payroll funding for agencies.

Why is Business Factors is the best choice for staffing factoring?

Below is an example of a factoring arrangement:

  • Fast financing in 2-3 business days
  • Competitive rates that can work with any budget
  • Simple 30-minute application process
  • Online account management system for transparent receivables processing
  • Assistance with back-office receivables and invoice handling so you can spend more time growing your business
  • Friendly customer service and knowledgeable staff to guide you through the staffing factoring process

Conclusion

Staffing invoice factoring can be a good alternative for temporary employment agencies that need to obtain working capital fast to finance payroll or offer competitive salaries to top talent, such as IT professionals or nurses. Unlike lending, factoring relies on the creditworthiness of the staffing agency’s clients.

Therefore, it is a good solution for agencies with a short or problematic credit history. The fee that a factor charges for their services is called a discount rate. The discount rate depends on the dollar amount and number of factored invoices, credit quality of your clients and your industry, among other factors.

The amount that the factor advances is called an advance rate and it ranges between 70% and 96%. The staffing industry usually enjoys a higher advance rate than retail, for example, because service invoices are harder to dispute. Alternatives to factoring include working capital, cash flow or asset-based loans, credit cards or merchant cash advance. Contact Business Factors to find the most fitting option for your business.

Representatives are available 24/7 to answer any questions you may have on accounts receivables factoring. Call us today at 800-672-3844.