Acting as an intermediary between employers and employees comes with numerous costs. As a result, staffing firms often explore various financing options to maintain their operations smoothly. One significant challenge is ensuring your employees are paid on time according to your company's payroll schedule, even when clients delay payments. This situation can strain your business's finances and impact on its long-term viability.

Everyone, especially your employees, expects to be paid in full and on time. Unfortunately, this makes it challenging to keep up when your clients need to catch up on paying your company.  This puts you in a difficult position that is essential to the long-term viability of your business.

Explore our comprehensive guide below to understand how invoice factoring can enhance your staffing agency's operations and financial stability.

What is invoice factoring for the staffing industry?

Invoice factoring allows staffing agencies to receive quick payments on customer invoices. By selling invoices to a factoring company for a small fee, agencies can improve their cash flow significantly. This type of financing is particularly beneficial for staffing companies as it provides a reliable cash flow solution.

Imagine the difficulty of waiting three months or more for customer payments versus the advantage of receiving payment the same day the invoice is sent to a factoring company. This approach ensures cash flow stability and relieves financial stress, enabling you to meet payroll demands regardless of growth.

Benefits of Factoring for Staffing Agencies

You're always looking for ways to give your staffing company an edge and stay competitive. That edge is often the difference between your company's failure or success.  

Factoring is the best option for employment firms. Here's why:

• Fast cash for your business. Staffing companies require a steady cash flow to keep their employees and clients happy. You cannot survive without this. The waiting game with customers to get paid is frustrating and stressful. Invoice factoring provides quick and dependable cash for a small fee. The fastest way to solve your capital problems for your staffing company is to use a factoring company. Some of our factoring partners offer same-day or next-day cash payments.

• Credit Score Independence: Don't worry about your low credit score and history. Traditional lenders focus on the credit scores and histories of your business. In contrast, factoring companies will look into your customers' creditworthiness, as they are the ones who will pay them back. Once the factoring company approves your account, you can verify the credit of your future customers. 

• Your company can still be eligible for factoring even if your credit is average or nonexistent. The factoring company underwriter would make the final decision, which typically takes 1-2 days.

• Save time and money by not having to collect invoices. A factoring company is responsible for collecting your invoices. This eliminates the need to outsource the task to your employees, freeing up valuable time, saving you money on payroll costs, and allowing your team to focus on more pressing issues.

• You're debt-free. Over time, a business loan or credit card will cost you thousands of dollars. Invoice factoring is the solution. It allows you to receive payment in advance for services provided.

Recourse and Non-recourse Staffing Factoring Contracts: Main Differences

In a recourse factoring contract, the business retains responsibility for unpaid invoices if customers default or go out of business. This means that if your customer fails to pay the factoring company, the factoring company will charge you back the unpaid invoice. 

On the other hand, in a non-recourse factoring contract, the risk shifts to the company factoring, which absorbs the loss if customers fail to pay the factoring company for the money they advanced to you. This type of contract protects the business from customer default but typically comes with slightly higher factoring rates. Understanding the differences between these factoring contracts is crucial for making informed business financing decisions and optimizing your invoice factoring strategy.

What to consider when choosing a staffing factoring company?

It could be challenging to compare and select a staffing factoring company. Locating a dependable and trustworthy service provider is necessary. Capital MBS can help you select the right factoring company that would work best for your business. We work closely with only best factoring companies out there who are known for their honesty, integrity, clear terms and contract, who do not play prime rate factor games, or have hidden fees, or make it extremely difficult for the customers to switch factoring company.

A staffing factoring company must possess the following characteristics:

• A good reputation is essential. When your factoring company interacts with your clients, they act as an extension of your business. Choose a factoring company whose principles and methods align with your own.

• It would help if you had a staffing industry expert like our account executive at Capital MBS. It is advisable to select a factoring company that has previously dealt with businesses in your sector. Ask factoring companies about their expertise and understanding of the industry.

• A fair and reasonable percentage rate. This is the fee you pay your factoring company for their services of advancing the money to you. Capital MBS can help you negotiate terms and provide you with a few competitive quotes for you to choose from. 

• Excellent client support. You'll have queries or worries from time to time. You want to avoid being stuck in a big call center waiting for someone to answer. Instead, you want to be able to quickly connect with your company's dedicated account manager, who can answer your questions and offer professional guidance.

How does the staffing factoring process work?

Staffing factoring is a win-win situation for both staffing agencies and factoring lenders. The staffing agency receives payment immediately for the services provided with up to 90-100% advance rate. Therefore, staffing factoring companies normally charge a 1.5-3% fee for advancing the money to your business. 

Here's how the staffing factoring process works:

• Provide details about your company. Your factoring company will need basic company documentation, including aging report, list of customers, and articles of incorporation. These documents must be easily accessible. 

If you are currently working with another factoring company and are unhappy and want to switch, you must provide a copy of your existing contract for our legal team to review. Once you decide to switch companies, you must provide a termination notice to your current factoring company. Depending on the contract, the termination notice typically has to be given 30-90 days in advance. Capital MBS can help facilitate this transition, ensuring the smooth and efficient process, saving you time and effort. 

• Provide specifics about your invoices. A factoring company cannot buy your invoices until it thoroughly understands them. You will need a copy of the invoice, confirmation, and proof of service. 

• Fill out the application. Once the factoring company has been selected, Capital MBS will assist you with factoring company application and process.

Once your account is approved and set up, you can normally upload your invoices into your online factoring portal. You can submit as few or as many invoices as you like to most companies. You are not required to send in each invoice. 

The factoring company will take out the agreed-upon fee before advancing you the cash. For example, if you factor an invoice for $10,000 and your factoring rate is 2.5%, if you are set up with a 100% advance, you will receive $9,750. If your advance rate is at 90%, then you will receive less. Once your customer pays the factoring company back, the remaining 10% advance fee will be paid back to you.

Let us help you overcome your staffing factoring challenges

At Capital MBS, we will help you find a factoring company that fits your needs and provides competitive rates and top-notch customer service. Based on your current needs of vision and mission, we will find you the best staffing factoring company with an excellent reputation and reviews for you to work with.

Capital MBS will help you choose the best factoring option for your staffing agency from the wide range available.