How long do you normally wait for your clients to pay their invoices? In the staffing world, the wait can be anywhere from 30 to 90 days typically, depending on the agency's niche. During that time, you have to pay your employees for the work they did, and you have to keep your doors open.
Is there any alternative to this waiting game? Factoring is the answer. You can typically get the cash you need within a couple of days.
The Reality of the Staffing World
One of the biggest constraints on agency growth is the carrying costs involved. There is always a wait between the time your employee does the work at the client site and the time the client pays the invoice. In the meantime, you have to pay the employee for the work done, while covering other operating costs.
For a single employee, those carrying costs might be minimal. But, when you start talking about multiple employees and multiple clients, those carrying costs can be quite significant. Smaller staffing agencies are often strapped for cash, which makes it extremely difficult to take on new clients or hire new employees.
The Answer to Cash Constraints
Factoring is a viable solution for freeing up the cash you have trapped in your open invoices. And that cash will allow you to meet payroll without sweating. It will allow you to take on your next big client without worrying about the carrying costs involved. It will allow you to bring on new staff members to help fulfill your new clients' needs.
The first time you factor you will need to go through an application process. The factoring company will want to look at your client list. They need to know that your clients are creditworthy. They will also look at the value of your open invoice ledger and how much you plan on factoring each month. This helps the determine if you are a good candidate for factoring, and the fees you will pay when you factor an invoice.
The application process typically takes less than a week to complete. If the factoring company approves your application, you are ready to factor your first batch of invoices.
The factoring process itself is fairly simple. You send the invoices to the factoring company. They review each one. They want to verify that it is from a creditworthy customer and that the invoice is real. Once they approve the batch of invoices (usually within 48 hours), they will then forward up to 90% of the value of those invoices to you as a cash payment. You can use that cash in any way you choose.
When the client pays the invoice, the factor will deduct a small fee from that payment, then forward the remainder on to you. The fees involved with factoring can range from 3% to 8%, depending on the time spent waiting on the client to pay as well as the amount of invoices you factor each month.
What Makes Factoring A Good Option
Factoring is a viable option if you need working capital. It is a great option, especially for small agencies trying to get to the next level.
- It is financing without taking on debt. Factoring does not involve a loan. The factor buys the invoices off of you in the factoring process. The cash given is the payment for those invoices.
- It eliminates the need to wait on client payments. You don't have to wait for 30 to 90 days to get your money. You can get it within a couple of days.
- It removes the need to track down payments. When you factor invoices, the factoring company takes care of any collection efforts.
- It does not require good credit on your part. The factor focuses mainly on your clients' creditworthiness, not your company's. You don't have to have perfect credit to qualify.
If you are tired of worrying about every dollar going in or out, you need to learn more about factoring. It can get you the cash you need in only a few days. And it is a tool you can use month after month.