7 Tips for Choosing the Right Staffing Factoring Company

7 Tips for Choosing the Right Factoring Company for Your Staffing Agency

Staffing and recruitment is a $218.8 billion industry in the U.S., Statista reports. With around $100 billion in growth in just four years, it’s clearly experiencing quite a boom, too. However, cash flow challenges are common due to the nature of the industry, and you’re likely to see more gaps and fluctuations as your business grows. An experienced staffing factoring company can help you navigate these challenges, though finding one that understands what you’re working with on a daily basis isn’t always easy. We’ll walk you through the basics of factoring for staffing businesses and provide some tips to help ensure you find the right partner for your needs on this page.

Financial Solutions for Staffing Agencies Are Vital

Staffing companies can face up to an eight-week gap between the time they pay wages and a check from the client actually clears. Additional costs, such as marketing, recruitment, background checks, and often training, only add to this burden. These unique conditions can leave you with a significant cash flow gap even in the best of times. Challenges are even greater during periods of high demand and growth, which unfortunately leave many staffing firms unable to accept new clients or expand their contracts.

If you’re responsible for staffing business finance, navigating these challenges can seem like an uphill battle and traditional funding solutions often fall short. After all, you may not need funding all the time, and committing to a long-term financing solution with ongoing payments and interest can hurt your growth potential in the long run. That’s where invoice factoring comes in.

Invoice Factoring is a Multifaceted Solution

Factoring is a time-tested funding solution that works for newer and established staffing firms alike. It addresses cash flow problems quickly and on-demand without requiring a long-term commitment.

What is Factoring and How Does It Work?

Invoice factoring provides you with immediate payment on your B2B receivables. Rather than taking out a loan, you sell your invoice at a discount to a factoring company and receive up to 95 percent of the invoice’s value upfront. Your factoring company collects the balance for you, and then sends you the remaining balance minus a small factoring fee when your client pays.

The Staffing Factoring Process is Simple

  • Send people to work. Operate like you usually do.
  • Submit invoices or proof of work to your factoring company. You’ll invoice clients like you normally do. Depending on your agreement, your staffing factoring company may be able to advance payment based on timesheets or other documents that show work was performed. Otherwise, you’ll send your factoring company a copy of the invoice when you bill your client.
  • Receive payment instantly. Most payments reach your account within a couple of business days. However, when you work with a staffing factoring company like Charter Capital, you can receive payment on the same day you invoice your clients.
  • Move forward. Your factoring company will collect from your client to save you the time and trouble of chasing invoices.
  • Receive final payment. You’ll receive the remaining sum minus your factoring fee when your client pays. There’s no debt or interest to pay back.

Factoring Benefits for Staffing Agencies

Staffing companies benefit from factoring in many different ways.

Quick and Easy Approval

Factoring is not a loan, so it doesn’t come with the same rigid approval requirements. Most factoring companies can have you approved within a couple of days. However, Charter Capital expedites the timeline. You can receive your factoring quote and terms on the same day you apply.

Instant Payment

It can take weeks or months for clients to pay and loans to disburse. With factoring, you can receive your cash right away. Because of this, many staffing companies leverage it when time is of the essence, such as when payroll is due.

Cash Flow Stability

The unpredictable nature of the staffing industry and each subset can make it challenging to know when cash is coming in and budget. With factoring, you know exactly when money is coming in, so it’s easier to manage your money wisely.

Flexible Funding

Staffing factoring companies often create flexible and tailored agreements with the businesses they serve. For instance, you aren’t required to sign a long-term contract with Charter Capital. You also have control over which invoices you factor and how often you factor, which allows you to leverage it on a case-by-case basis when it makes the most sense for your business.

Back-Office Support

Collections are taken care of for you when you factor invoices. At Charter Capital, we also provide free client credit reports, so it’s easier to make educated decisions when extending credit to your clients through invoicing.

Types of Staffing Agencies That Use Factoring

There are around 25,000 staffing and recruiting companies across the country, according to the American Staffing Association (ASA). Most can leverage factoring.

Temporary Staffing and Recruitment

Although their cash flow needs and processes are different, both temporary staffing firms and permanent placement or recruitment firms routinely work with staffing factoring companies.

Administrative Staffing

Firms that provide secretaries, administrative assistants, executive assistants, call center attendants, data entry specialists, and more all regularly leverage factoring. It helps with day-to-day needs like recruitment, testing, and payroll.

Medical and Healthcare Staffing

Factoring is routinely used by healthcare companies that provide temporary placement of physical therapists, occupational therapists, registered nurses, doctors, and other licensed professionals to accelerate payment and make payroll easier. It also works well when placing auxiliary staff members, such as medical assistants and secretaries.

Finance Staffing

Finance staffing companies, such as those that work with controllers, CPAs, bookkeepers, and accounting clerks, routinely leverage factoring to address ongoing cash flow challenges and when expanding or taking on larger contracts.

Construction Staffing

Most construction staffing companies experience large seasonal swings. It can be difficult to ramp up and meet demand without access to working capital. Because of this, businesses that provide skilled and unskilled labor, covering areas like light industrial and forklift operators, often work with staffing factoring companies.

Security Staffing

Some factoring companies, such as Charter Capital, specialize in factoring for security firms. It’s especially helpful for bridging cash flow gaps when onboarding new clients or accepting large assignments.

7 Tips for Choosing the Right Staffing Factoring Company

Choosing a factoring company can seem a bit complicated. However, keeping the tips and questions to ask in mind that we’ll cover below will streamline the process and ensure you select a partner that genuinely supports your growth.

1. Confirm They Have Experience with Staffing Companies

Many factoring companies can serve staffing companies, but not all of them specialize in it or understand the nature of the industry. A factoring company that understands your business and its unique challenges will provide better service and be more instrumental in your growth.

Questions to Ask

  • What is your experience with staffing businesses?
  • How are the services you provide for staffing companies different from those you provide to businesses in other industries?

2. Get a Clear Breakdown of All Fees

Your primary expense with factoring is the factoring fee, which is usually between one and five percent of an invoice’s value. However, each staffing factoring company is different and may have additional fees beyond this. While it’s not always best to go with the cheapest service, as this can impact quality, speed of payment, and other concerns, you’ll want to select a company that’s transparent about all fees and offers competitive rates.

Questions to Ask

  • What will my factoring rate be?
  • Are there any additional fees or charges that may apply?
  • Are there ways I can lower my costs?
  • Do you require a reserve, and if so, how is it handled?

3. Check the Company’s Reputation and Client Testimonials

Examine the company’s reputation before signing up. Look for signs they’re committed to ethical practices and quality service, such as membership in the American Factoring Association or International Factoring Association. Read reviews and testimonials from their clients to find out if they really deliver on their promises.

Questions to Ask

  • How long have you been in business?
  • Are you a member of any professional organizations, and if so, which ones?
  • Do you have client testimonials or reviews you can share with me?

4. Verify the Funding Process and Speed

Because the speed of payment is a crucial consideration for most staffing companies, you’ll want to make a point of inquiring about how they ensure payments are made quickly as needed.

Questions to Ask

  • What are my payment options?
  • How quickly are individual invoices approved for factoring?
  • Are there additional fees for expedited service?

5. Analyze the Contract Terms Carefully

Always review your factoring agreement carefully before signing and confirm everything is in order.

Questions to Ask

  • What happens if I decide to leave your factoring company tomorrow?
  • What happens if you don’t meet our agreed-upon terms for speed of funding?
  • What happens if my client doesn’t pay their invoice?

6. Ask About Your Advance Rate

Your advance rate, or the total amount of upfront cash received, will vary from one staffing factoring company to the next. Factoring advances typically range from around 60 to 95 percent. However, most staffing companies fall on the higher end of the spectrum, meaning you are likely to receive 90 percent or more of an invoice’s value upfront. The average length of time it takes your clients to pay, factoring volume, concentration, and other considerations will be taken into account when this figure is determined. While high advance rates are typically ideal, remember to ensure you’re balancing amounts with speed and cost.

Questions to Ask

  • What will my advance rate be?
  • Are there ways to increase my advance rate when needed?
  • How do other factors I have control over, such as volume, influence my rates?

7. Get information About Support and Additional Services Offered

Factoring companies with experience supporting the staffing industry often tailor their approach or offer additional services that can help your business grow. Identifying these benefits in advance can make it easier to choose between factoring companies.

Questions to Ask

  • Will I have a dedicated account manager? If not, who will I speak to when I have questions or need help?
  • How are my invoices and payments tracked, and will I have access to data on demand?
  • How does your team handle the invoice collection process?

Work with an Experienced Staffing Factoring Company

If invoice factoring sounds like the ideal solution for your staffing company’s funding needs, work with an experienced specialist who can help you maximize the benefits of factoring while helping you manage costs effectively. With decades in the industry and dedicated staffing factoring support, Charter Capital can help you bridge cash flow gaps and grow. To learn more or get started, request a complimentary factoring rate quote.

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