In today’s business environment, a temporary staffing company can be a very profitable venture. The environment of outsourcing rather than hiring employees offers many attractive opportunities for staffing agencies. However, without sufficient working capital, a staffing company will struggle. The company will be unable to operate effectively or add new clients. Ultimately, the company’s growth will suffer, that's where payroll funding comes in.
For any agency, the most important expense is being able to cover employee payroll. Failing to pay employees regularly and on time will result in them leaving to find work elsewhere. In addition, funds are also needed to pay for employment taxes and other employee related expenses. Falling out of tax compliance is an all-too-common problem for agencies; this is not only disruptive but also costly.
The majority of commercial factoring, manufacturing factoring, freight factoring, government factoring, oil and gas factoring clients will pay their invoices in 30 to 60 days; this time frame is where the problem often arises for staffing agencies. An agency must be able to pay their employee’s salary for up to two months before it starts getting paid. This means your company must have a cash reserve to pay operating expenses, we can help with purchase order financing. The larger the contracts, the larger the reserve required.
Lack of working capital is why growing a small agency is so difficult. Without a reserve, your company cannot acquire new contracts. Without new contracts, growth is simply not possible. The right type of financing offers a company flexibility. With enough working capital, a company can react to changes, needs and opportunities – vital to maximizing its potential.
The benefits of payroll funding
One of the easiest ways a company can cover payroll and see growth is by using payroll funding. This type of invoice factoring allows a company to finance their slow-paying receivables. Instead of waiting for clients to pay in 60 days, your agency can receive funds through the payroll funding company within a day or two – in some cases, in just minutes.
Payroll funding allows a staffing agency to convert their accounts receivable to immediate cash. The agencies can then turn around and use this working capital to cover their payroll and payroll taxes. In addition, the agency can employ more personnel to fill available positions, and expand into new areas. A staffing company can worry less about slow-paying clients and enjoy its growth potential more.
How does payroll funding work?
The payroll funding process is fairly straightforward. The invoices are funded in two separate advances, with the first advance covering approximately 90% of the gross value of the invoice. Once the invoice is submitted for funding, the money is advanced to your staffing agency. The payroll funding company then takes care of collecting payment for the invoice. The second advance – the remaining 10% minus the fee – is sent to you after the payroll funding company receives payment from your client.
One of the biggest advantages of payroll funding is that it is available to small agencies with few assets – including startups. Because the invoices are the assets being financed, the funding company will be the most interested in the credit quality of your invoices. Invoices are financed based on your client’s good commercial credit. These aspects make payroll funding an attractive option for large, small, and startup agencies. After all, your greatest asset is a strong roster of clients.
How payroll funding can grow your staffing company
Are you curious about how this form of financing can grow your staffing company? Consider an example. Assume a large company prospect with a stellar reputation. This client needs several full-time employees for the next few months. However, they pay their invoices in 60 days, and carrying the cost of the contract is simply not an option for you.
This is where payroll funding can help. With this solution, you can invoice this client weekly and immediately fund the invoices. Weekly funds are then available to pay employees, allowing your company to service the contract. Using this strategy can help your company grow and quickly surpass its current financial capabilities.
Where to secure payroll funding
Security Business Capital is experienced at helping companies secure the funds they need to thrive and grow. Staffing companies can secure the working capital they need for consistently covering payroll and other operating expenses. To learn more about what payroll funding can offer your staffing company in growth and flexibility contact Security Business Capital for a free quote or consultation.