The staffing industry is undergoing rapid changes and needs the benefits of invoice factoring and accounts receivable financing. With more companies outsourcing different processes and operations, the number of staffing companies has increased exponentially over the last decade. Companies are more inclined to hire contractors and staffing agencies rather than employing full-time personnel.
Staffing Factoring Eliminates Receivable Delays
The reason staffing factoring is so attractive is because the delay in revenues from services provided exceeds the cost of payroll necessary to pay contractors or employees. Staffing agencies perform work for a customer on an ongoing basis and revenues may not be recognized as cash until receivables are collected. This delay in payment is often 30 days or more, yet staffing companies have to pay their employees or contractors on a weekly or bi-weekly basis.
For example, let’s say you have a staffing company that provides IT services. The staffing company hires employees to perform the services. The staffing company invoices their customer on a monthly basis at the end of each month. The company invoices its customer for work done in the month. The staffing company invoices on terms of net 30 or net 45 which means they have to wait 30 to 45 days after the invoice is submitted to their customer. However, the staffing company is required to pay their employees or contractors weekly. If the employer or staffing company pays their employees weekly, the expenses are accumulated every week while their revenues are delayed. They have to meet 4 pay periods before they can even invoice their customer. In month two, they have to pay their employees 4 more weeks before they can even collect on month one’s invoice. This creates at 2 month gap between revenues and payroll expenses for the staffing company.
Factoring Companies Purchase Invoices
Staffing companies solve this problem by turning to a factoring company. Staffing factoring companies purchase the invoices immediately after they are generated. Upon purchasing the invoice, the factoring company sends funds to the staffing company at typically 80 to 85% of the invoice. The staffing company therefore eliminates the 30 – 45 day collection period from their cash cycle. Instead of waiting 2 months for cash revenue, they only wait one month while services are performed. This is why accounts receivable factoring is so attractive to staffing companies.
Mazon Associates is a factoring company in Dallas, Texas that provides factoring services for all types of staffing businesses. Mazon has been in business for over 45 years and has experience working with the staffing industry. Many factoring companies offer identical services around the country. You can find factoring companies in California, Florida, Georgia, Arizona or any other major city or state by searching FactoringClub, a nationwide directory of over 50 staffing factoring companies across the U.S and Canada.
About the Author: Rick Hultz is the owner of FactoringClub, a nationwide directory of over 100 factoring companies in North America. Rick is an industry broker and consultant for invoice factoring services.