Factoring – a Longstanding Growth Solution for Staffing Companies
Small and medium-sized businesses are the backbone of our economy, so it's important to have financial options to better support them. For companies in a rapid growth phase, quick and flexible funding is essential, and accounts receivable factoring can be an optimal financing solution.
Staffing agencies are especially suited to using factoring as a financing tool. Most companies who use staffing agencies consider them a supplier like any other and want payment terms of 30 or 60 days. However, a staffing company’s principal asset is people who need a paycheck every two weeks. After all, they are employees, whether permanent or contract. The gap between a 60 day receivable payment and a 14-day payable needs to be financed. Below, we’ll discuss the benefits of invoice factoring for staffing companies, and how staffing agencies can optimize their cash flow needs.
What is factoring, and how does it help?
Factoring is not (technically) lending; it is the purchase of accounts receivable with a prepayment advance of funds against this purchase. As such, factoring is essentially a cash advance on your own accounts receivable, and is not a loan.
Accord Financial can, for example, purchase the outstanding invoices of a staffing company and advance the prepayment, between 75-90% of the face value of those invoices right away. No need to wait for customer payment. Advances can be made same-day or next in most circumstances.
The balance, called the reserve, is held by the factor until the invoice is paid. Many people assume the reserve is the cost, it is not. The purpose of the reserve is to protect against potential disputes or administrative errors. For instance, the staffing company could have a discrepancy with one or several employees’ time sheets. However, disputes in staffing companies receivables are less likely because time sheets are usually produced and signed, which translates to greater certainty of payment and therefore higher advance rates.
Another benefit of using a factoring company to increase access to cash, is that the company will not be asking for advance payments to meet their cash flow needs.
Accord’s financing facilities start at $500,000 and can go up to $20 million as the company grows.
What are some specific advantages of invoice factoring for staffing agencies?
Factoring allows companies to access funds without the restrictive covenants that you’ll typically find with banks and larger financial institutions. It also allows the business to:
- Grow with a credit line that grows with sales
- Extend payment terms to customers
- Accept customer concentrations
For more information on factoring, contact a factoring expert that will work with you to find a solution that is structured to your business’ unique needs.
How important is a company’s credit history to a factoring company?
Not all financial services providers are overly focused on credit history. In fact, Accord Financial often focuses more on the credit quality of customers and its plans for the future. A company’s financial history will still be considered, but funding is based on the value of the accounts receivable, and not necessarily on prior profitability or the strength of the staffing company’s balance sheet.
What does the factoring process look like?
When factoring, Accord Financial purchases your accounts receivable and immediately advances up to 90% of the invoice amount. Once your staffing agency’s invoices are paid, we send you the remaining balance, the reserve, which is the original 10% to 25% that was withheld from initial funding.
Our factoring fee is taken from the initial funding of the transaction, so you can expect to receive the full reserve once your customer pays for your goods or services.
Factoring from Accord Financial helps your business grow
Remember, every staffing company has their ups and downs. What invoice factoring can do for you is:
- Offer you more consistent cash flow
- Provide better terms with no additional debt
- Eliminate the need to put up other assets as collateral
- Simplify administration with Accord handling all collections
- Unlock new opportunities
- Reduce the stress associated cash flow and continue running your business
- Maintain great relationships with your customers
Factoring with small and medium-sized businesses has been at the core of our business for over forty-five years. Because our team has worked with many staffing agencies in the past, we are very familiar with the challenges in that particular industry, which will help us craft a perfect solution for you.