Last Updated on August 16, 2023
In the staffing industry, agencies heavily depend on prompt invoice payments to fulfill weekly payroll obligations. Unfortunately, you often need to wait weeks or even months for customers to pay, creating a cycle of negative cash flow and mounting debt.
To grow your staffing agency and compete with other companies, you need cash to make payroll, train personnel, and take on new clients – this is where staffing factoring comes in.
In this article, we discuss how staffing invoice factoring works, its benefits, and how it stacks up against other financing alternatives. Read on to learn how you can improve cash flow with altLINE’s staffing agency factoring services!
What Is Staffing Factoring?
Invoice factoring for staffing companies (frequently referred to as payroll funding) is a process in which your business sells its outstanding invoices to a factoring company like altLINE to receive a cash advance. Because payroll is typically paid on a weekly or bi-weekly basis but net 30 and net 60 invoice payment terms are standard business practice, new and growing staffing agencies often find themselves struggling to find the funds to pay employees. Factoring injects cash into your business before clients have paid their invoices, giving you the flexibility to make payroll while taking on new clients.
Benefits Of Invoice Factoring For Staffing Agencies
The top factoring companies for staffing agencies will help you unlock more funding without having to wait for your customers to pay. Applying for factoring through altLINE gives you the following benefits:
Get Your Invoices Paid In Days, Not Months
The best staffing factoring companies provide funding within 1 or 2 days of submitting your invoices. This means they can ensure you earn up to 80-90% of your hard-earned money right away instead of waiting 30, 60, or even 90 days for your invoices to be paid.
Access Capital To Grow While Maintaining Equity
Sometimes, startup staffing companies are forced to miss growth opportunities because they do not have the funds to pursue them and do not want to sell equity to receive these funds. However, invoice factoring can set them up for long-term success – factoring your staffing invoices provides the quick cash needed to take on new clients, pay debts, and make payroll without sacrificing equity.
Take the Guesswork Out Of Payments
Long invoice payment terms can make you feel uncertain about when your next customer payment will come in. Even worse, overdue invoices and delinquent customers can hurt your company’s finances, making it difficult to grow your staffing startup. Factoring your invoices can soften the blow of uncertain and late payments, making your finances healthier and more predictable.
How Does Invoice Factoring for Staffing Companies Work?
Selling your invoices to a staffing agency factoring company like altLINE means you’ll be turning unpaid invoices into cash, which can then help you pay operating and staffing expenses. By submitting your invoices to altLINE, you also reduce the negative impact of late customer payments and long payment cycles. Instead of waiting for your clients to pay their invoices, you can use our staffing factoring services to get cash when you need it most.
Here is an overview of how altLINE factors invoices for staffing and temp agencies:
Submit Your Unpaid Invoices
altLINE accepts all kinds of unpaid invoices, but we favor those for creditworthy customers and large or mid-size businesses. Additionally, we do not factor invoices for clients who consistently make late payments. However, if your usual invoice turnover time is between 30 and 90 days, your receivables are well-positioned for factoring.
altLINE Advances 80-90% Of The Invoice Face Value
You can generally expect a factoring advance rate of 80-90% of the total invoice value, and you will receive the cash advance between 24 and 48 hours after submission to altLINE. The exact timing of your cash advance deposit usually depends on the date of your client’s receipt and job completion.
altLINE Helps Collect Payment For Your Outstanding Invoices
altLINE provides a lockbox under your company’s name and reports all payments through our online customer portal. If issues arise, we will work with you to communicate with customers to resolve payment disputes and ensure you maintain good working relationships with them.
altLINE Pays Out The Remaining Unpaid Invoice
After we collect all factored invoice payments, we deduct our factoring fee (typically 1-5% of your invoice) and transfer the remaining invoice value to your bank account.
Uses For Your Cash Advance
When staffing and temp agencies receive cash advances from factoring, you can rest easy knowing that you have more control over your finances. You do not have to wait for clients to pay to meet payroll obligations or fund your business development. Instead, you can eliminate long payment cycles and unlock growth capital to pursue more opportunities and make more placements.
Here are some ways to use cash advances you get from factoring:
Whether you are a startup staffing company that just landed its first big client or a well established temp agency that regularly leases employees, making payroll is a constant financial obligation. Unfortunately, long invoice payment terms and past due invoices damage your cash flow and can delay payroll, demoralizing your staff. Factoring for staffing agencies prevents weekly and bi-weekly payroll delays by ensuring you have enough cash on hand to pay your employees on time, even when your clients wait until the last day to pay.
Take On New Clients
You should not be forced to wait for customers to pay to take on new staffing jobs and grow your business. Invoice factoring provides the cash you need to pay for staffing and training, allowing you to take on the next big client without sacrificing equity or taking on debt.
Pay Operating Expenses
Aside from salaries, staffing agencies also need to pay for infrastructure, back office costs, and other operating expenses. While your bills cannot wait, your customers can. Fortunately, invoice factoring for staffing companies helps you pay those expenses before they are due, even when your clients wait to pay their invoices until the due date.
Staffing Businesses We Fund And Finance
altLINE’s staffing factoring provides cash advances to various businesses in the sector. Here are some examples of staffing industries we service:
- Nurse staffing
- Temp agencies
- Oilfield staffing
- Construction staffing
- Teacher recruitment
- Healthcare and medical staffing
Factoring Your Staffing Invoices vs Other Funding Options
In addition to invoice factoring, staffing and recruitment companies have a few other funding options to improve cash flow. In this section, we compare the three alternative financing methods to staffing agency factoring:
Staffing Factoring vs Bank Line Of Credit
Most staffing companies choose a bank line of credit as their first financing option. While your temporary staffing agency may qualify for a line of credit, the funds may not be enough to grow your business.
Banks typically look at your company’s fixed assets when determining your credit eligibility. However, staffing agencies typically do not have many fixed assets. This means you may have a harder time qualifying for a line of credit.
Staffing agency factoring is often considered the better option for new and growing businesses because factoring companies look at your clients instead of your assets to approve cash advances. If you work with an established and/or reliable customer base, factoring companies could provide working capital even when banks cannot.
Staffing Factoring vs ACH/MCA Loans
ACH (automatic clearing house) and MCA (merchant cash advance) loans are fast-approval financing options offered by many lenders. The approval process for ACH and MCA loans takes just one or two business days and only requires your bank statements.
However, its ease of qualification is offset by the high interest and lender fees that can reach up to 60% of your original loan. Moreover, ACH and MCA lenders often offer aggressive loan renewals that can put your business in dire financial straits and make you wonder how to get out of such a loan.
The best factoring companies for staffing agencies typically provide a safer option than ACH and MCA loans, because reliable customers are bound to repay your cash advances — and the top factoring companies will have performed a thorough background check on these customers to ensure they are reliable to pay on-time . Factoring also gives you extra peace of mind because you are not constantly thinking about repaying mountains of debt.
Staffing Factoring vs Quick Pay Discounts
Offering your customers discounted rates for quick payments can accelerate cash flow when necessary. However, early payment discounts are limited because you rely on the customer to prioritize cost savings instead of having cash on hand. If they turn down your discount offer, you may be left low on cash and unable to grow your staffing business.
Invoice factoring is more reliable because you do not exclusively rely on customers taking you up on the discount offer to receive cash in advance. As long as the factoring company approves your submitted invoices, you will receive working capital in a timely fashion.
Typical Factoring Rates And Fees
Even the top factoring companies for staffing agencies will charge factoring fees on every invoice submitted, though fees vary based on how much you plan to factor, the creditworthiness of your customers, and how long your clients take to pay. Factoring larger amounts and getting customers to pay faster usually gives you lower rates. Factoring companies may also consider other criteria like your years in business, customer base diversity, and again, overall customer credit quality.
Most staffing agency factoring companies charge two fees:
- Initial fee: This fee pays for your invoice processing expenses for a set duration (usually the first 30 days). Your initial fee usually costs up to 3.50% of your invoice’s face value.
- Incremental fees: These periodic fees cover all processing expenses past the initial time period. These fees are typically tiered and increase the longer your invoices are outstanding. Expect to pay up to 1.50% of your invoice’s face value per charge.
Requirements To Apply For Staffing Factoring
You must get approved for staffing factoring before getting a cash advance. Here are the documents you need to apply:
List Of Existing And Potential Customers
altLINE requires a list of your existing and potential customers when applying for factoring. We need this list to review your customer base’s credit quality and determine your factoring eligibility.
altLINE requires you to complete a form as part of your factoring application process. You will need to enclose these documents alongside your form:
- Business ownership identification
- Personal identification
- Employer Identification Number
- Customer contracts
- Articles of incorporation and other relevant corporate documents
Accounts Receivable Aging Report
Accounts receivable aging reports categorize your invoices based on when they are due. We need these reports to review your customers’ payment behaviors and determine their factoring eligibility. We will consider invoices 30 to 90 days outstanding, but we will not factor invoices where customers say they cannot pay. altLINE factors with recourse (meaning we do not take on the liability of non-payment), but if you are concerned about your clients’ abilities to pay, you may want to check out the differences between recourse vs. non-recourse factoring.
Frequently Asked Questions About Our Factoring Services
Here are some common questions about staff agency factoring answered:
Do you need to run a credit check before getting started?
altLINE runs a credit and background check on all staff agency owners that apply for factoring. However, there are no minimum credit thresholds for approval. Background checks are reviewed for financial-related crimes or felonies. In the event a borrower has a spotty background, approval with altLINE may be in question, but in the event the borrower is disqualified, altLINE will often work with the borrower to identify a staff agency factor that is willing to help.
Do you require UCC filings when factoring staffing agency invoices?
Upon executing a term sheet, altLINE will file a UCC on the client’s business. This UCC filing allows altLINE to properly secure the collateral (i.e. the invoices) it plans to advance against when the factoring facility is in place. UCC filings are an integral part of any form of lending.
Is staffing agency factoring a debt or loan?
Staffing agency factoring is neither debt nor a loan. Invoice factoring is the sale of your invoices to a third party. The money advanced against these invoices will be repaid by your customers. However, altLINE is a recourse factor, so you may need to pay the cash advance back if your customer fails to pay their invoice.
Do you offer non-recourse staff agency factoring?
altLINE only offers recourse factoring for staffing companies. While you must repay the cash advance if your customer fails to pay, recourse factoring structures often allow for factors to extend lower rates and larger credit limits on your clients, whereas non-recourse factoring rates and fees are higher due to the factor taking on full responsibility for unpaid invoices.
Jim is the General Manager of altLINE by The Southern Bank. altLINE partners with lenders nationwide to provide invoice factoring and accounts receivable financing to their small and medium-sized business customers. altLINE is a direct bank lender and a division of The Southern Bank Company, a community bank originally founded in 1936.