A staffing agency or service is a unique type of business. The staffing agency has employees that they pay on a weekly or bi-weekly basis to work for another company or service. The staffing agency then bills their clients for that work, which may mean billing on a monthly basis with 30-day terms.
The obvious issue in this model is that there is gap, often of at least 30 days, when the staffing agency has to pay their employee without being paid by the client. This leaves a potential problem for payroll, and it is where staffing agency factoring comes into play.
The Factoring Advantage
With staffing agency factoring the third-party, the factor, buys the accounts receivable for work already completed and invoiced to clients. The factor then advances a set amount, often up to 80% of the value of the accounts receivables, to the staffing agency. This provides the staffing service with the funds needed to make payroll.
In turn, the company providing staffing agency factoring then takes on the role of managing that account. They will collect from the client, handle all processing of payments and provide reports and information on the account to the staffing agency. This is most often done through online portals that allow the staffing business to monitor the account.
Once the client has paid the staffing agency factoring service in full, the factor deducts the agreed upon fees for the services from the withheld 20% , and then deposits any residual balance into the staffing agency account.
Advertising and Recruiting
When using staffing agency factoring services staffing companies also have the ability to take on new employees to fill job posting for their clients. Without this service another staffing company will get their foot in the door with the client, potential resulting in the loss of a current customer or at the least a limitation on the potential to grow.
Likewise, without the cash on hand to advertise and market, it is impossible to attract new clients. With staffing agency factoring money on hand can be used to market as best suited to attract just the type of clients you want and need to grow your service.
It is important to realize that when using staffing agency factoring there is no repayment and no restrictions on how the cash from the factor can be used by the staffing service. There is also the complete freedom to determine which accounts receivable to factor, and it can change based on your cash flow needs on a monthly or even weekly basis.
