Payroll funding is financing solution utilized by many staffing companies. However, with a seemingly endless number of payroll funding providers, each with its own structure and terms, it’s easy for staffing owners to overpay.
With clear pricing and no hidden fees, The Southern Bank prides itself in its ability to provide payroll funding with great service at a low price. In this case study, we provide an example of a light industrial staffing firm that reduced its financing costs and improved customer relationships by making the switch.
Temporary Staffing Firm Specializing in Light Industrial with $5,000,000 in Annual Revenue
An East Coast staffing firm had been utilizing an independent financing company for its factoring and payroll funding needs for several years. At the outset, the relationship made sense, as the payroll funding company had staffing experience and provided invoicing, payroll processing, and collections in addition to financing.
- Independent financing partner’s staffing industry focus
- Simplified, bundled service package that includes back-office support
- Referral from existing Worker’s Compensation broker
- Lack of financing interest from local, community, and regional banks
Problems with Independent Financing Providers
While the staffing firm’s agreement with the independent financier helped ease the firm’s cash crunches, other problems soon arose.
Unlike traditional financing, payroll funding providers take a more active role in a borrower’s business. While a bundled solution can be beneficial, the bundled solution also shifts many customer service responsibilities from the staffing company to the payroll funding provider. Additionally, these bundled services come at a cost, and determining a fair and competitive price for these services is difficult when it is presented as a single fee.
As this staffing firm’s revenue increased, the owner began to see signs that it had also outgrown its payroll funding provider.
- Invoices being sent out late, for the wrong amount, or not sent out at all
- Unprofessional communications by the payroll funding provider with the staffing company’s customers
- Unexpectedly high fees with little explanation from the financier
- Delays in the clearance of customer payments and the release of reserve accounts causing cash flow problems
The staffing firm knew that it was time to make a change and take more control of their business. The owner notified its current payroll funding provider of their termination prior to their sixty day renewal, and engaged The Southern Bank in financing discussions.
In response, The Southern Bank worked with the staffing firm to scope out and implement a new payroll funding solution that better met their current needs.
- A 42.4% reduction in financing costs due to a simplified rate structure
- The transition of invoicing responsibilities back to the staffing firm, allowing them to better manage customer relationships and reduce confusion
- A reduction in average day’s receivables outstanding from 32 days to 24 days
- The elimination of lockbox fees and other administrative fees
- Improved customer relations due to a higher degree of professionalism from bank representation
- Greater financial clarity and control after “unbundling” bank office services
By financing with an FDIC member bank, the staffing firm was able to cut out the middle man and reduce payroll funding costs significantly. More importantly, The Southern Bank’s payroll funding offered the staffing client more control over their business resulting in improved customer relationships.