How to Use Invoice Factoring to Finance a Staffing Agency
Although the economy is recovering, the strength and duration of the recovery remain uncertain. Because of this, many companies are reluctant to hire permanent employees, opting instead to use a tempo...
Although the economy is recovering, the strength and duration of the recovery remain uncertain. Because of this, many companies are reluctant to hire permanent employees, opting instead to use a temporary staffing agency to fulfill their personnel needs.
The staffing industry has seen a considerable increase in their level of activity as companies start ramping up their production. Although this is very good for the industry, it also creates a cash flow problem. The employees that are hired by the agency need to be paid weekly (or every two weeks), but clients pay their invoices in 30 to 60 days. Therefore, staffing agencies need a financial cushion to handle these expenses until their clients pay. The demands on this financial cushion will increase if the agency lands a new contracts.
One easy way to fix this problem is to put more capital into the business - either directly or through investors. This can be complicated, and could involve giving up some equity in your company. Another alternative is to get business financing - either through a business loan or a line of credit. Both of these products can be hard to get as the company will need to show solid assets, an experienced management team and a well crafted business plan. The problem is that staffing agencies don't have assets in the traditional sense of the word - there is little if any real estate, and no machinery or equipment. The assets are their employees, and those walk out the door every day. There is an alternative to conventional business loans that can work well in this situation - it's called invoice factoring.
Factoring provides an advance payment for the staffing agency's a/R. This reduces the time you wait to get paid from 45 days to just a few days. This reduces your reliance on a cash cushion and provides liquidity to meet your company's expenses.
Also, invoice factoring is easier to get than conventional financing. Most factoring companies consider your invoices to be strong assets. Because of this, a factoring company will usually be willing to extend financing to small businesses that have potential and solid customers. This makes invoice factoring a very accessible form of financing.
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