Finance for Staffing Companies
For most businesses like staffing agencies that sell to other businesses on credit, a positive cash flow cycle allows businesses time to collect from their customers before they need to pay their vendors. In some cases, the timing of the collections on A/Rs and the payment on A/Ps are about even, or a neutral cash flow cycle.
Calculating Your Cash Flow Cycle
A quick and easy method of calculating your cash flow cycle is to subtract the Uses of Cash from the Sources of Cash. Sources of Cash would be your accounts payable and accrued expenses that are not required to be paid right away. One way of looking at Sources of Cash is that it is money that you OWE to others. Uses of cash, like accounts receivable and inventory, are places where your cash is parked waiting to be converted back to cash.
Using year-end financials, calculate the days for each Source of Cash and subtract from those each Use of Cash:
Accts Payable + Accrued Expenses – Accts Receivable – Inventory
(COGS/360*) (Oper. XP/360) (Sales/360) (COGS/360)
*For interim financials, simply replace the 360 denominator with the days in the reporting period.
COGS=Cost of Goods Sold
Oper. XP=operating expenses
Hitachi Business Finance Helps You Bridge Your Cash Flow Cycle
Many staffing businesses operate with a negative cash flow cycle – they have to pay their employees (and the requisite payroll taxes) long before they collect from their customers. This causes a special cash need for staffing businesses that Hitachi Business Finance clearly understands. Our expertise in financing payroll for staffing companies makes Hitachi an ideal financing partner.
Ready to improve your staffing agency’s cash flow with financing from Hitachi Business Finance? Contact Jeff Wright today at (248) 259-3749 or email@example.com