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Staffing Services Receivables Factoring

May 25, 2008
Is your staffing services company in need of short term cash flow? Staffing services companies, just like other businesses, go through various growth phases during their lifetime. Each business phase can require additional cash flow, and in some cases, the business may not have the cash on hand. This shortage can cause the business owner to seek financing options; however there can be challenges associated with trying to obtain financing quickly.

In the staffing services industry, there can be delays in the receipt of the compensation due to your company. As the clients that your business is working with are not paying their employees directly, your staffing services company is responsible for making payroll. While delays are a part of business operations, your staffing services company will still need to make payroll for your employees, and if these delays are substantial, it can cause your business to be in a short term cash crunch.

Lack of working capital is the largest cause of business failure, as small businesses can often simply not afford to bridge the gaps in cash flow if things don't go as they have planned. Business owners can seek traditional methods of financing through their personal banker, through applying for personal loans or even cash advances from company credit cards to meet shortages. However, these options are not always available, they can take several weeks to fund and many business owners have already exhausted these options. Factoring is a viable financing option for staffing services companies to capitalize on their receivables for the much needed cash that their business needs quickly.

Understanding Staffing Services Receivables Factoring

In the staffing services industry, it is common to have a long list of accounts receivables owed, for the services that your company has provided. These accounts receivables are a valuable asset that you can leverage through the financing option of factoring. Factoring is not a business loan, but it is a cash advance on the business's accounts receivable assets.

When you apply to establish a relationship with a factoring company, the acceptance of your company is not established based upon the company's credit, but upon the credit of the companies that owe you money in the form of accounts receivable. The reason for this is that the factoring company is actually going to purchase your receivables from you at a discount. The company is therefore interested in the payment history of the companies that owe your staffing services company money.

The factoring company typically pays between 75-80% of the total invoices owed to you in advance, and then they take over the responsibility of collecting the full amount from the company that owes you. Once the factoring company collects upon the invoice, they will pay you the difference owed, minus any of their applicable fees.

Most factoring companies will charge a fee that is based upon the credit risk of the companies that owe your business money and the time frame that it takes the company to pay the invoice amount. If the company pays their invoice within 30 days, the fee that the factoring company will charge is often several percentage points less than if it takes 60-120 days for the company to pay your invoice. Average factoring fees will range from 1-6%, so be sure to evaluate all of your options prior to establishing a relationship with a factoring company.

How Does Factoring Benefit Staffing Services Companies?

Factoring benefits many different kinds of industries, particularly industries such as staffing services, that have a need for quick cash flow turn around time. One of the singled largest expenses for a staffing services company is its payroll. Outsourcing your team of employees to other companies is the fundamental basis of your business model, and why everything could be going smoothly, if a client takes longer than expected to pay their invoice to your company, you could be in a position where you are required to fund your payroll without the necessary financial resources. If this is the case, things can become challenging financially for your staffing services company quickly.

Factoring provides payroll funding options for staffing services companies who are in need of quick cash flow. When you have an invoice that you would like to receive quick funding on, you can submit it to the factoring company that you have established a relationship with. The factoring company will typically issue you the needed capital within 48 hours of the invoice being submitted. This payroll factoring will allow your company to receive capital quickly so that you can meet your financial obligations on time. Also, payroll factoring can allow you take job opportunities with larger companies that have a standard invoice payment practice that is longer than smaller companies. Overall, establishing a factoring relationship will provide your staffing services company the funding that it needs to remain viable and to expand.

Staffing factoring can provide much needed cash flow quickly to your business, without extending additional credit. Also, staffing factoring can solve finance issues when your business is unable to obtain additional credit lines from other financing sources.
About the Author
Thomas McCarthy has designed, developed & implemented financial systems for many years. Thomas was a Factoring customer for over 7 years prior becoming a business owner and webmaster. Download our FREE EBook "Growing Your Company Without Debt" learn how Invoice Factoring may be right for your company at: http://www.dfsfactoring.com
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