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Payroll Funding Case Study: Reducing Financing Costs by 42.4%

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.

Company

Temporary Staffing Firm Specializing in Light Industrial with $5,000,000 in Annual Revenue

Background

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.

The bundled solution was attractive due to its simplicity and the owner was happy to sign up citing the following reasons:
 

  • 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.

Some of the issues the firm encountered included:
 

  • 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.

Solution

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.

By engaging with The Southern Bank, the staffing company benefited from:
 

  • 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

Conclusion

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.


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  1. […] Here at the Southern Bank, we’re well-positioned to help staffing companies achieve growth and expansion as a direct source of funds and staffing specialized lender. As a bank, our borrowers enjoy access to a direct source of funds. Our bank has a solid deposit base funding our operation, so we do not turn to an outside lender. This equates to cost savings. In a recent case, a staffing company switched its payroll funding to The Southern Bank and  cut payroll funding costs by 42%. […]

  2. […] The Southern Bank specializes in financing staffing firms. Read more about how a staffing company leveraged Payroll funding to reduce financing costs by 42.4% in our case study. […]

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