The Ultimate Guide to Staffing Factoring

The Ultimate Guide to Staffing Factoring

There are various financial burdens associated with acting as a middleman between employers and workers. For that reason, staffing companies generally consider all available financing options.

Everybody wants to be paid in full and on time, especially your workers. Unfortunately, when your customers are working on delayed payment terms, this makes it difficult to keep up.  This forces you into a balancing act that’s critical to your company’s long-term success.

Our ultimate guide to invoice factoring for staffing agencies includes all the information you need to make an informed decision for your business.

• What is Staffing Factoring?
• How Does Staffing Factoring Work?
• Non-recourse vs Recourse Staffing Factoring
• Benefits of Factoring for Staffing Agencies
• What to Look For in a Staffing Factoring Company
• How Invoice Factoring Companies Calculate Risk
• The Application Process
• How Does My Staffing Company Qualify?

What is Staffing Factoring?

Staffing factoring is a type of invoice factoring that allows staffing agencies to get paid faster on invoices from customers. In exchange for a small fee, your company can receive the majority of the money due without the wait. This goes a long way in improving cashflow.

Consider the challenges associated with waiting 90 days or longer to receive payment from your customers. Now, consider the benefits of receiving payment the same day you submit an invoice to a factoring company. Not only does it improve your cashflow, but it also removes some of the financial-related stress associated with your staffing company. Invoice factoring ensures that you can issue checks every payday no matter how large your payroll becomes.

How Does Staffing Factoring Work?

Both staffing agencies and factoring companies benefit from staffing factoring. Rather than waiting indefinitely to be paid, the staffing agency is paid immediately. As a result, staffing factoring companies receive a fee in exchange for "fronting" the money.

The staffing factoring process is as follows:

• Share information about your business: Your factoring company will require basic information about your business, such as articles of incorporation, business licenses, and financial statements. These are all things that should be readily available. 
• Share details about your invoices: A factoring company can’t purchase your invoices until they understand them. In most cases, a copy of the invoice, confirmation, and proof of service is generally enough. 
• Complete an application: Completing an online application allows you to quickly and efficiently get up and running. If your invoices are approved, you can get started right away. But if your invoice factoring company has questions, you’ll have to clear the air before proceeding.

Once you have an account set up, it’s time to submit your invoices. Most companies allow you to submit as few or as many invoices as you want. You’re under no obligation to submit every invoice. 

You’re then charged a fee for each invoice you submit. Your fee is dependent upon two factors: the volume and your industry. Understanding what you get in return for your fee will help you understand why factoring is often the best approach. 

The Difference Between Non-recourse and Recourse Staffing Factoring

There are two basic types of factoring: non-recourse and recourse. 

Recourse factoring is the most common. In short, your company agrees to buy back any invoices that the factoring company is unable to collect. In other words, if your client doesn’t pay, you’re eventually responsible for buying back the invoice.

Non-recourse factoring puts more risk on the factoring company. With this, they assume the risk of non-payment by your customers. 

While it doesn’t hurt to compare both options, recourse factoring is by far the most common. Non-recourse factoring is more restrictive and more expensive, thus making it a challenge to fit into your current financial processes.

Benefits of Factoring for Staffing Agencies

You’re always looking for a competitive advantage for your staffing agency. This can be the difference between success and mediocrity. 

Here are the top benefits of factoring for staffing agencies:

• No debt: With a business loan or credit card, you take on debt that can cost you thousands of dollars in the long run. Invoice factoring isn’t the same, as you’re getting paid in advance for money that’s already due to you. 
• Little emphasis on your credit history and credit score: Traditional lenders, such as banks and credit unions, focus heavily on your credit history and credit score when deciding whether to loan you money. This isn’t the case with invoice factoring. The factoring company wants to know how reliable your customers are. Even if your company has no credit, poor credit, or average credit, you can still qualify for factoring. 
• Quick cash for your agency: Staffing agencies need consistent cashflow. Without this, you’ll find it challenging to stay afloat. However, waiting for clients to pay can be frustrating and stressful. Invoice factoring provides quick and reliable cash in exchange for a small fee. Some factoring companies provide funds within 24 hours, which makes it one of the fastest capital solution strategies for your staffing business.
• Less time collecting on invoices: When you hand your invoices over to a factoring company, it’s their job to collect on them. This allows your internal team to spend more time on other tasks and saves you the hassle of potentially having to outsource this task.

These are some of the most powerful benefits of staffing agency factoring, but you’re likely to find others as you move through the process of factoring.

What to Look For in a Staffing Factoring Company

Comparing and choosing a staffing factoring company can be challenging. You can’t trust just any company with something so important. You need to find a reliable and trustworthy service provider. 

Here are some of the top traits to look for in a staffing factoring company:

• Good reputation: Your chosen factoring company becomes an extension of your business as they interact with your clients. Choose a factoring company whose methodology and values align with your own.
• Staffing industry experience: It’s always best to choose a factoring company that has experience working with companies in your industry. Talk to several factoring companies about their experience and knowledge of the space. 
• Competitive fee: This is the money you pay in exchange for the service you receive from your factoring company. Don’t search by price alone, but make sure you’re paying a competitive fee that includes many other benefits crucial to your success.
• Quality customer service: There will come a time when you have a question or concern. You want to know that you can quickly connect with a customer service agent who can answer your questions and/or provide professional guidance instead of getting stuck in large call centers waiting for someone to respond. 
• Reasonable qualification requirements: As excited as you may be about factoring, it doesn’t help if you don’t qualify. Find a factoring company with reasonable qualification requirements. 

Don’t hesitate to reach out to any provider you’re considering. Ask them questions, request more information, and talk through the application process. 

How Invoice Factoring Companies Calculate Risk

Factoring companies are in the business of collecting invoices on your behalf. For this reason, they must carefully calculate risk before taking on a staffing agency as a client.

The first thing an invoice factoring company will do is collect all the prerequisite information. This gives them the information required to calculate risk, which in turn impacts the final decision to approve or deny your application. 

They calculate risk by reviewing details such as:

• The creditworthiness of your clients: If your staffing clients have good or excellent credit, a factoring company is more likely to take you on as a customer. This reduces the amount of risk placed on them. 
• Business bank account: Without this, you don’t have a legitimate business. And in that case, a factoring company isn’t likely to do business with you. 
• Invoice terms and conditions: The terms and conditions of your invoices come into play when calculating risk. Are your invoices ironclad? Are there “holes” that could allow a customer to avoid paying in full and/or on time?

You want your staffing agency to be considered low-risk. This improves the odds of approval, which allows you to immediately begin factoring invoices. 

The Staffing Factoring Application Process

Most factoring companies make it simple to apply online. This streamlines the process, providing the opportunity to get started sooner.  

In addition to basic contact information, the application process generally entails the following:

• Information about your business: Provide information on your business and customers. This can include things such as annual revenue, company size, and industry. 
• Invoice details: Payments terms and periods, as well as any other details associated with your invoicing process. 
• Recent bank statements: This is not required but three to six months of recent bank statements will help the factoring company determine if your staffing agency is a good fit. 

Note: A factoring company may request additional information to process your application. Standby prepared to provide anything that can improve your chance of approval.

How Does My Staffing Company Qualify?

Qualifications vary from one factoring service to the next, but here are some of the most basic: 

• B2B service provider
• Any size, 10K - 10M
• Clear audit trail
• Creditworthy debtors
• No consignment sales
• No liens on A/R
• No progress billing
• No pre-billing
• No warranties

Additionally, some factoring companies only work with clients in specific parts of the world, such as North America. This is often necessary to make collecting invoices easier.

Factoring with REV Capital

Modern businesses need speed and flexibility to succeed. With factoring at the heart of your business model, you can shorten payment periods, reinvest in growth, and forget the hassle of collecting invoices. If your staff can’t wait for payment, why should you?

We process approximately 4,000 invoices per day, have 1,400+ active clients and fund more than $3 billion annually. REV's people-first approach to factoring means having a finance partner that's there for you the whole way. 

If you’re ready to get started, apply online, contact us via email (info@revinc.com), or dial 855-879-1511. One of our experienced invoice factoring professionals will answer your questions, walk you through the application process, and ensure your staffing business succeeds with invoice factoring.