A staffing agency can be a very lucrative business, especially if you’re able to manage a critical need: cash flow.
That’s usually the biggest challenge when you’re overseeing a staffing agency. You’ll need consistent access to funds to pay full-time employees who play a critical role for your business. The problem is you typically have to wait 30, 60, or 90 days before your customers actually pay their bills.
Long payment cycles can be a drag
If you think chasing customer invoices or focusing mainly on clients who pay invoices early is the only way to fix your cash flow dilemma, consider a smarter option: invoice factoring.
Factoring allows you to get advances on unpaid invoices, giving you quick access to funds that you could use to run your business.
That’s what Earl Lerner, President of Stewart Staffing Solutions, discovered. “With factoring, we get a working capital lender that does all of our temp business,” Lerner said. “We can borrow 100 percent of the funds minus a few pennies.”
Cash flow gaps at staffing companies can mean lost opportunities
Think about it: when you run a staffing agency, you typically need to compensate full-time employees weekly and have a plan to manage cash flow for daily operational expenses. If you don’t have any financing options to keep cash flow stable, you’ll end up reaching into your own pocket.
Since all of your remaining funds will be spent on operational expenses, you’ll be left with no choice but to say ‘No’ to a new project or a new client. This is especially true for staffing agencies that are just starting.
“In the beginning, we were borrowing from friends and family,” Robertson said. Without stable cash flow, your agency will hold off opportunities to expand, make office lease payments, pay workers’ compensation insurance, and most importantly, keep new talent. “We were averaging maybe five to 10 people per week,” Robertson said. With factoring, HandledNow was able to triple their headcount.
Alternative lending & online factoring for staffing companies
For most staffing agencies, time is of the essence. That’s why applying for a bank loan typically isn’t a viable option. A bank loan can take months to be approved. Banks typically also have stricter loan application requirements, including some form of collateral and detailed financial records.
Online invoice factoring changes all of that—thanks to alternative lending, submitting an unpaid invoice for quick funds isn no longer painful or time-consuming. With online lending platforms, the application process is completely streamlined and requests for funding are completely automated, unlike manual loan processing.
When you’re running a staffing agency, investing in the right people is the backbone of your business. The same applies for searching for a factoring company—if you do your due diligence and work to understand your factoring agreement, factoring can be the perfect fit for your business. To find the best factoring company for your staffing agency, try following these three tips:
3 Tips to Find the Best Factoring Company for Your Staffing Agency
1. Check the Reviews
A reputable factoring company should have strong reviews of their services. Check review sites such as TrustPilot or the Better Business Bureau that specialize in verified customer reviews for businesses.
2. Watch Out for Hidden Fees
It’s important for you to know and understand the fees involved in your factoring agreement. In some cases, especially with traditional factoring companies, the fees are hidden or not easy to understand. Some notable fees to watch out for are draw fees, monthly maintenance fees, and termination fees, the latter of which can cost up to 15% percent of your factoring line.
3. Ask for Referrals
Referrals are a smart way to find the best vendor for whatever you need, and that is certainly true in invoice factoring. You’ll find many reliable sources of information, such as the Business News Daily’s list of Best Factoring Services for 2018. You should reach out to small businesses that have used factoring to gain deeper insights into invoice financing. Get information about what their experience was like working with a factor so that you can ask the right questions when it comes time to picking a factor.
Online invoice factoring can be a strong solution for staffing agencies that are suffering from cash flow crunches. If your limited on time and resources, consider alternative factoring.