Is Invoice Factoring Right for Your Staffing Company?
Dec 8, 2021
What is Staff Factoring?
Staff factoring is a sale of outstanding payroll invoices to a third-party factoring company. It is a type of business financing to maximize cash flow and effectively fund daily operations. Staffing factoring allows staffing businesses to access the capital needed to recruit, hire, onboard, and run payroll.
The factoring company assumes responsibility for collecting payments on the invoices it factors. You can use a factoring company to buy a few or all of your invoices.
Because staffing companies hire and assign temporary employees, it is essential that they have quick access to the capital needed to run effectively and efficiently.
How Staffing Factoring Works
Factoring companies buy invoices at a discounted rate from staffing companies. The factoring company then pays a portion of the receivable up front. This frees up invoice capital almost immediately, rather than 30, 60, or 90 days as with traditional invoicing.
Factoring companies take a small portion of the invoice as a fee, and pay the remainder to the company when the invoice is paid off.
Steps to Staffing Factoring
First, the staffing company invoices their customer. Then, the staffing company sells the invoice to the factoring company.
Next, the factoring company pays the staffing company an advance on the invoice. The staffing company’s customer then makes payments on the invoice to the factoring company.
Finally, the factoring company forwards the staffing company the remaining amount of the invoice, minus its fees.
Staffing Factoring Benefits
- Access to Working Capital
The primary benefit to staffing factoring is the increase in working capital. This capital can help staffing companies cover payroll and operating expenses.
- Hire Many Workers Quickly
Staffing companies often have the need to hire an influx of workers quickly, especially seasonally. With this rapid hiring, staffing companies gain access to capital they need to acquire and pay staff.
- Competitive Hiring Advantage
Factoring allows staffing companies to offer competitive salaries and attract top talent.
- Better Experience for the Customer and Employee
Factoring company partners, like Catalyst, can work with staffing agencies to meet their unique needs. Factoring also helps staffing companies to make more informed choices about which customers they should partner with.
Potential Negatives to Staffing Factoring
Depending on the invoice’s value, factoring may not be worth the fees
Staffing businesses are responsible for invoices that their customers cannot or do not pay – this is why staffing agencies should consider choosing a factoring company that allows for recourse factoring. If the staffing business has customers who are reliable with good credit, non-recourse factoring may be fine. It’s up to the staffing business to determine which is right for them.
Security Staffing Firm Saved Over $100,000
A security staffing firm was growing quickly, but didn’t have their financials in line to secure a conventional loan. They were frequently missing payroll, making them turn to high-interest MCA loans.
After invoice factoring with Catalyst, they were able to cut out MCA loans, saving them over $100,000. Read more about this case study.
Pipeline Inspection Staffing Company Outgrows a Line of Credit
A pipeline inspection staffing company in Kansas was growing rapidly after securing a large contract with a global customer. The company’s financial history prevented them from increasing a traditional line of credit with the bank.
The company’s substantial industry history, good invoice documentation, and low concentration allowed Catalyst to pay off the bank and provide the funds needed to keep up with demand. Read more about this case study.
Why Choose Catalyst Financial?
Catalyst financial specializes in staffing factoring and payroll factoring. We help significantly improve cash flow at reasonable and competitive rates.
Because Catalyst is a smaller, less bureaucratic firm, we can offer flexible financing options. We are able to work with each staffing agency’s unique needs, and customize a plan that works best for their business.
With Catalyst, you can obtain advanced rates of up to 90%. There are no exit fees or long-term contracts, nor does Catalyst hide or increase fees after signing.
Other benefits to working with Catalyst include:
- Competitive rates
- No long-term contracts
- No maintenance fees
- Online reporting
- Weekly rebates
- Daily receipts reports
- Recourse and non-recourse programs offered
- No exit fees
How would staffing factoring help your staffing business grow? Find out today.