Staffing Factoring Companies
Staffing factoring, also known as invoice factoring or accounts receivable factoring, is a financial transaction where a business sells its invoices to a third-party factoring company at a discount. The factoring company then collects the payment from the client, providing the staffing agency with immediate cash to meet its operational costs.
The process of factoring is simple and straightforward. Once a staffing agency has provided its services and issued an invoice to the client, it can sell this invoice to a factoring company. The factoring company will typically advance a large percentage of the invoice value, often within 24 hours. The remaining balance, minus a small factoring fee, is paid once the client settles the invoice.
Benefits of Using a Factoring Company
Staffing factoring offers several benefits for staffing agencies. Firstly, it provides immediate cash, enabling agencies to meet their payroll and other operational costs without waiting for clients to pay their invoices. This can be particularly beneficial for agencies that work with clients who have long payment terms.
Secondly, staffing factoring can help agencies grow their business. With a steady cash flow, agencies can take on more clients and fill more job orders without worrying about cash flow constraints. They can also invest in marketing and other growth strategies.
Bridging the Pay Gap
Many factoring companies provide staffing agency factoring to staffing companies so they can bridge the pay gap caused by employee payroll and customer invoicing. Staffing agencies have inherent cash flow issues because customer invoices don’t get collected until 15, 30 or 45+ days, yet they have to pay their employees on a weekly or bi-weekly basis. Payroll funding pays you up-front for your invoices, so you don’t have to wait for invoice payments.
Factoring companies usually provide funding within 24 to 48 hours of receiving and verifying your invoices. Once the invoice becomes due, your customer pays the factoring company directly. The factoring company sends you the final payment depending on the advance rate. Factoring fees are taken from the final payment.
Temporary Staffing vs Permanent Placement
Temporary staffing agencies hire their own employees and assign them to their clients to fill vacancies or shortages due to maternity leave, worker shortages, seasonal spikes, or special projects. Staffing agencies usually specialize in certain industries such as administrative office work, warehouse and factory jobs, housekeeping personnel or catering services.
Contract staffing is a type of temporary staffing that is done on an individual basis, according to contractual requirements between the staffing firm and the client. Contract staffing employees are typically highly skilled and professional. Common contract staffing positions are in the areas of accounting and finance, information technology, telecommunications or engineering.
Permanent placement firms or recruiting agencies match job seekers with clients needing permanent employees. Businesses outsource recruiting to placement agencies in order to save time and take advantage of an agency’s expertise in a particular industry. Recruiting agencies usually specialize in certain areas such as accounting, technical, or executive job placements.
Many factoring companies don’t provide factoring services for permanent placements due to the contingencies and potential problems with payment. Clients may not be happy with the employee and demand reduced payment or offsets. Employees may quit and the agency has to find a replacement, causing payment to be delayed or cancelled.
Choosing a Staffing Factoring Company
There are many staffing factoring companies in the market, each offering different terms and services. When choosing a factoring company, staffing agencies should consider factors such as the advance rate, factoring fee, contract terms, and the level of customer service.
The advance rate is the percentage of the invoice value that the factoring company will advance. This can range from 70% to 90%, depending on the factoring company and the creditworthiness of the client. The factoring fee is the cost of the factoring service, typically a small percentage of the invoice value.
The terms of the factoring transaction are outlined in a factoring agreement. This agreement will specify the advance rate, factoring fee, and other terms of the factoring service. It will also outline the responsibilities of the staffing agency and the factoring company.
Before entering into a factoring agreement, staffing agencies should carefully review the terms and conditions. They should also seek legal advice to ensure they understand their obligations and the implications of the agreement.
The Bottom Line
Staffing factoring is a valuable financial solution for staffing agencies. It provides immediate cash, enabling agencies to meet their operational costs and grow their business. With many staffing factoring companies in the market, agencies should carefully consider their options and choose a factoring company that best meets their needs.
