Staffing Agencies run into lack of liquidity as business surges on credit terms. An invoice factoring company can help you to get the funding you need to pay for critical operating expenses to grow your business. Here are four reasons to enlist the help of an invoice factoring company when cash flow challenges arise.
You’ve chosen a niche market to serve, and now you need to acquire more clients. With nearly 20,000 other staffing companies in the United States, you realize that getting noticed by established businesses will take a killer marketing strategy. Online marketing campaigns, trade show attendance, and business directory listings are necessary for sustaining and growing your staffing agency. When your agency is short on cash but long on ideas, finding a finance company that offers invoice factoring is often your best option to meet these short-term cash needs. Factoring receivables to pay for client acquisition efforts is a smart move since getting good clients on board also helps you to attract and retain top talent.
Net 30 and greater billing cycles are standard for staffing agencies, but they are rife with risks. A net 30 billing cycle generally means that your client must pay a bill in full within 30 days of receiving an invoice. Companies that pay late can put a real strain on your operations. Factoring receivables gives you the wiggle room to compete with other staffing agencies that extend net 30 terms to credit-worthy clients.
You’ve done your homework. You’ve established long-term business relationships with companies in your niche industry. Your contracts eliminate “pay when paid” clauses, and they leave no room for late payments without penalties. However, your net 30 billing cycle still leaves you strapped for cash when you have to pay workers every week while waiting 30 days to get paid from clients. Factoring your invoices is the best way to pay your employees on time even when your company isn’t getting revenue.
You're starting to see a harvest from all of the business development seeds that you’ve planted. A sought-after client in your niche industry needs a cadre of specialized laborers to quickly fulfill an urgent government contract. However, you don’t have the funds to make payroll and pay those high-wage workers to even get them on contract for a few weeks to do the work. Do you pass on the work? It took a long time to get the attention of this client, and the opportunity to work with the company may not come again for a long time. By partnering with a factoring company that offers payroll funding, you can get the funds to put those workers on contract before you bill your client.
Besides making on-time payroll for workers, staffing agencies must keep up with tax contributions to the government to stay afloat. Laborers who find seasonal, temporary, or temporary-to-hire work through staffing agencies are considered employees and not independent contractors. This means that staffing agencies are responsible for withholding and paying payroll taxes for their workers. These federal and state tax withholdings also contribute to worker’s compensation and unemployment insurances.
While putting aside money to meet your tax obligations is the best option, emergency situations happen. If your quarterly tax payments are due and you don’t have the funds to pay the bills, an invoice factoring company can help your staffing agency by purchasing your accounts receivables and giving you the needed funding for payroll and your 941 tax bills before problems get worse. It’s best to get a factoring company involved early when you face this type of situation. If you get behind with your 941 tax obligations, the IRS can put a tax lien on your assets to collect the money that you owe. They are first in line for payment when invoices are paid by your clients.
If your staffing agency has this type of tax lien problem, invoice factoring is difficult but not impossible. Some factoring companies will work with your agency to factor your invoices when the IRS grants you a lien subordination that places the factoring company in the first position for invoice payments.
Traditional bank loans will always have a place in financing today’s businesses. Staffing agencies that want to make large equipment purchases or acquire new companies look for bank loans. Getting a bank loan is an arduous process, but it’s often necessary in these cases. However, a staffing company that experiences short-term cash flow gaps is better served by an experienced invoice factoring company.
Factoring companies that regularly work with staffing agencies understand the unique challenges that you face. They pay for discounted invoices at competitive rates to get you the cash that you need to pay your employees, market your services, and get out of tax troubles fast.
Banks lend money based on a variety of criteria including collateral. They give preference to companies that have physical assets such as real estate, special machinery, or other equipment. Many staffing agencies don’t have significant amounts of property to use as collateral; their primary assets are their people and unpaid invoices. Factoring companies work with the assets that you have to give you the money that you need to succeed in the staffing agency business.
There are plenty of great opportunities for smart staffing agencies in today’s marketplace. However, it’s expected that cash flow shortfalls will continue to be an issue. Establishing a relationship with a factoring company that offers payroll financing and invoice factoring services can help your staffing agency to seize opportunities and mitigate risks no matter the economic climate.