Running a staffing company, or providing a service that is based on your employees, is a very good option for many types of businesses. However, it can be difficult to pay employees weekly for their services when your customers only pay you on a monthly basis or perhaps even on a longer invoice terms. In these situations, factoring for staffers is a very important option to consider.
Factoring is very different than a loan and relies on the creditworthiness of your clients, not on any credit report or score from your own company. For many business owners, this is very important differentiation as their new business may not have a good credit rating or may not qualify for a traditional bank loan because of their limited time in business.
How it Works
Factoring for staffers works the same as factoring in other industries where it is much more common as a funding option. As the staffing company, you have the option to sell some or all of your accounts receivables to a third part, the factor.
The factor will pay the value of the invoices or accounts receivable you elect to sell less a small percentage as a fee for the service. This is less than 6% for most transactions, and various issues are considered when the factor determines the fee structure.
Once you have determined the account receivable and the fee, the factor then provides cash to the account you have provided. This will be up to 80% of the agreed upon amount. The balance is held until your customers pay the factor the outstanding invoice.
At this point, the factor then returns the residual amount to your account. There is no loan to repay, no interest and the factor also handles all the back-office work associated with the accounts receivables they hold.
The Reality of Factoring for Staffers
It is much more common for factoring companies to provide factoring for staffers today than ever before. This is a proactive way for a business to address cash flow deficits and have the ability to take on new contracts, make payroll, hire new employees or take advantage of opportunities as they arise.
And, since factoring for staffers is not a loan, this will not impact your balance sheet or create a liability for your business. There is no need for a personal guarantee and no encumbering of assets, it just provides you with the cash you need when you need it, with no strings attached.