One of the biggest issues staffing companies face is recurring cash-flow gaps caused by unpaid customer invoices. Despite having performed the work, agencies often wait 30, 60 or even 90 days to receive payment. Not only does this make it difficult to cover critical day-to-day expenses, but it also stunts opportunities for future business growth.
How can your agency solve these cash flow gaps? Read below to learn why invoice factoring is the payroll funding solution you need.
What is Payroll Factoring?
Payroll factoring is a short-term funding solution used by many staffing companies to help pay their employees on time. As mentioned above, many agencies face challenges getting paid quickly on pending invoices, leaving them short on cash to cover employee wages. Payroll factoring helps bridge that gap, ensuring employees get paid on time.
How Does Factoring Help With Payroll?
Invoice factoring allows staffing companies like yours to receive same-day payment on outstanding invoices. Instead of waiting weeks or months to get cash in hand, you can simply submit your invoice and get access to working capital within 24 hours.
Here’s a quick breakdown of how it works:
- Your staffing company completes the work and receives an invoice.
- You send that invoice to a factoring company, like RTS.
- The factoring company pays you most of the invoice within 24 hours.
- Your customer pays the factoring company within the agreed terms (e.g., net 30), then the factoring company sends you the remaining balance minus a small fee.
With factoring, your agency has consistent access to the cash flow needed to meet payroll obligations and grow your business — even if your clients are slow to pay. More importantly, you greatly reduce the risk of damaging employee trust or creating compliance issues.
Learn about our invoice factoring solutions for staffing companies.
Benefits of Invoice Factoring
Beyond funding payroll, there are several reasons why an increasing number of staffing companies are turning to factoring services. Some of the benefits include:
- Day-to-day funding – For companies with a high or steady volume of invoices, factoring is a great way to secure the working capital needed to pay for taxes, benefits, repairs and more.
- No new debt – Factoring is not the same thing as a loan or a merchant cash advance. Since the funding you receive is from your company’s own receivables, you won’t need to make any payments outside of your factoring fee, which is typically around 2 – 3% of the total invoice.
- Emergency cash flow – It’s critical to have available cash on hand in the event of an emergency, so that your business can continue operating as normal. With factoring, you can either get immediate access to funding you need or set aside money for a rainy day.
- Financing future growth – Payroll factoring can be a very useful tool for startups and growing businesses. Whether you’re looking to hire more employees, take on new business or purchase new equipment, factoring provides you with the capital needed to accept larger clients and expand operations.
- Flexibility and scalability – Another benefit of factoring is that the amount of funding you receive can grow with your business. If your staffing agency does decide to take on more clients — and issue more invoices — you will have access to more available cash for your business needs.
Choosing a Factoring Company
There are several factors to consider when selecting a factoring company. Beyond providing quick access to funding, a good factoring company will serve as your partner in growth and answer all your questions. That’s why it’s important to do your research, vet your options and choose a partner that aligns with your staffing company’s business needs and future goals.
Some questions to ask a potential factoring partner can include:
- What are your terms, and will I be locked into a long-term contract?
- What is your fee structure, and are there any hidden fees?
- Do you offer both recourse and non-recourse factoring?
- How much experience do you have working with staffing companies?
- What’s the application process?
- What technology do you offer?
What’s more, you should pay attention to the quality of customer service provided by different factoring companies. Inevitably, there will be times when you have questions or need support. In these instances, it’s important to know that you can trust your factoring partner to resolve issues quickly and provide consistent, reliable communication.
Learn what else to look for when choosing a factoring company.
Work With a Reliable Factoring Partner
As a trusted industry leader, RTS has been providing reliable funding solutions to companies nationwide for more than 40 years. Backed by decades of factoring experience and financial strength, our team can help you meet your payroll obligations and grow your business — no matter what the market looks like.
Want to learn more about our financial solutions? Fill out the form and a representative will be in touch shortly!