When it comes to finding the right people to build your client’s temporary workforce dream team, your staffing agency is rock solid. But waiting for the cash to hit the bank feels like it takes a lifetime.
Frequently, the short-term cash flow gap between when invoices are paid and when payroll needs to be paid creates anxiety for staffing firms who’ve experienced a growth spurt. The strain leads many CFOs to search for ways to improve cash flow.
Improving cash flow is possible. Staffing factoring offers a solution to improve cash flow with limited risk and without damaging the company’s balance sheet. We’ll explore how factoring works, the benefits specific to staffing firms, and the benefits of working with a factoring company.
Staffing Factoring Defined
So what does factoring entail? Unlike other financing options like traditional bank financing or a line of credit, factoring helps mitigate risk and increase cash flow when you need it. You can get cash today, not weeks from now, after lengthy credit approval.
Staffing factoring is typically used to fund payroll. The strategy involves selling the company’s customer invoices to a factoring company for a fee. Once engaged, the staffing company receives an advance on their customer invoice of typically 85%-95%.
For example, invoices for employee hours are submitted at the beginning of the payroll week to the factoring company. The advance on the invoice provides the staffing agency cash to pay employees, which improves their cash flow predictability.
Benefits of Staffing Factoring
Let’s look at the benefits for staffing companies:
- Predictable Cash Flow: We already gave this one away in our example. Once the invoice is generated, the firm is able to submit the account receivable to the factoring company for an advance. This provides a predictable cash flow rather than relying on guessing when the client will pay the invoice.
- Stable Financial Statements: By keeping revenue on your books and debt off your balance sheet, the firm creates stabilized financial statements.
- Unlimited Funding: With unlimited funding potential (limited only by accounts receivable) payroll is never hindered by an overleveraged or low line of credit.
- Accessibility: Regardless of your company’s size or stage of business, there are funding options available. Factoring is an option for companies who find traditional lending challenging to obtain or inflexible. With access to funds when invoices are generated, growth is determined by the agency’s ability to place employees rather than their access to capital.
- Speed: A typical factoring arrangement can be put in place very quickly (in as little as 7-10 days).
If your company has been searching for financing options, you’re aware that choosing the wrong package can be costly and restrictive. That’s where Liquid Ally helps identify opportunities that work for you, not against you.
The Liquid Ally Difference
While there are many benefits to factoring, not all factoring companies are created equal. At Liquid Ally, we strive to make finding the best funding option a simple process. With prior experience as a CFO, I understand the frustration of digging through the multitude of lending options available to select the most advantageous one.
As Liquid Ally facilitates the process, we’ll find you the perfect match from our 100s of vetted lenders and negotiate a financing package tailored to your company’s needs at the lowest lending cost.
We offer factoring services with free set-up, no fees or deposits, no contracts, and same-day funding. Our clients’ typical interest rates are 10%-16% APR. We can save our clients as high as 30% on their financing costs.
Ultimate Goal
Our goal is to help our clients create and maintain positive cash flow ultimately stabilizing their balance sheet. We want to help determine the best funding option for your company.
Contact us for a Complimentary Liquidity Assessment to see how factoring or other funding options may optimize your financial statements.
Want to learn more about how to choose a lender right now? Check out our free guide: 5 Things You Need to Know Before Looking for a Lender.