Any type of staffing company may come up against a common problem: the gap between when the company’s bills are due and when they are paid by clients for their employees’ work. Though this is an issue for any staffing agency, it is particularly important for those which provide IT staffing. One solution that many staffing companies will choose is to factor their invoices. This allows them to get the cash they need as soon as they need it, without significantly reducing their overall profits.
Companies that supply professional IT staff face additional issues that make factoring almost a necessity. IT staffing is definitely a high-growth industry at the moment, meaning more competition and the pressing need for immediate cash flow to hire new employees. Though it’s a buyer’s market as far as hiring is concerned, this is less true for trained IT professionals whose knowledge is crucial to many businesses. Procuring the best IT professionals means spending some money to get them.
Why Most Staffing Companies Make Use of Factoring
All businesses need consistent cash flow, but for staffing agencies, this is even more crucial – a staffing agency’s biggest expense is their payroll. All their employees expect to be paid of course, and unlike bills, they cannot be put off for even a short time. Any gap in paying employees most likely means a subsequent loss of talent, which can spell the death of a staffing company, especially one whose staff features digital knowledge.
Compounding this problem is the fact that many staffing companies pay their employees every week rather than every other week, creating an even greater need for immediate turnaround cash flow. Staffing companies that are growing or attempting to grow may find that factoring is a necessity. A staffing agency cannot grow without new staff, and new staff cannot be found without money for advertising. Unlike employees who have been with the company long enough to trust they will get paid, new hires are less likely to stay on staff if a setback in the payroll occurs.
Additional Challenges to IT Staffing
The greatest challenges to IT staffing companies are how quickly the IT industry is growing and how varied the required knowledge for IT staff can be. Many businesses are turning to IT staffing agencies because their IT needs are growing more quickly than their ability to find qualified employees. This creates amazing opportunities for staffing agencies that supply professional IT workers, but finding and retaining such talent is difficult without a positive cash flow.
Because the IT industry is growing so rapidly, IT staffing agencies are hiring IT workers at an unprecedented rate. The money necessary for advertising and timely payments is often obtained through factoring.
The IT industry covers a lot of bases. IT workers may be required to perform any number of actions, each of which may require similar, but not identical, knowledge and training. This means that an IT staffing company needs to have a wide variety of IT professionals on hand – and staffing agencies can’t afford to lose talent that is specific to an industry.
Another challenge faced by companies supplying IT professionals is the pace at which technology, methodology, techniques, and required knowledge change within each industry. Keeping up with these rapid changes requires IT staffing companies to constantly hire new professionals with new training and skills. This need to hire new staff on a consistent basis increases the necessity for immediate cash.
Other challenges for these companies include:
- Impending retirement of the baby-boomers currently on staff.
- Declining numbers of students enrolling in IT curriculums.
- Growth of offshore outsourcing.
Companies supplying professional IT staff face many challenges, not the least of which is the speed at which the industry is growing and changing. When these companies need immediate cash to meet these challenges, factoring can provide them with the funds they need.