How Flexible Financing Can Help Your Staffing Company Grow

by Donna Lucente

The Economy

The U.S. economy appears to be somewhat stable right now. The unemployment rate is expected to continue at the natural rate and key economic indicators such as the gross domestic product (GDP) are in the ideal range. However, there are concerns as to how long this will last due to events such as impending tariffs, consolidations, and layoffs. The most recent recession has taught the importance of preparing for the unexpected. Regardless of economic conditions, the need for cash flow will always be an issue for growing companies.

Effects on Staffing Companies

There continues to be a shortage of qualified applicants in the workforce. In order to remain competitive, employers must find a way to bring talent to their company in a cost effective manner. Sometimes the cost of finding and providing incentives to keep talented employees extends beyond the capabilities of an employer.

Businesses are turning to recruiters to fill their employment needs. According to the American Staffing Association, staffing jobs increased by 2.2% in October 2018 compared to the same month one year ago. Companies realize several benefits to looking outside for employees:

  • Flexibility – Staffing can be increased to meet seasonal demands, while keeping the ability to shrink the workforce when necessary.
  • Cost savings – Healthcare benefits, time off, stock, tax, etc. are negotiated through the staffing companies themselves, reducing the costs associated with full time employees.
  • Skilled labor – The costly process of attracting and hiring top talent is incurred by the staffing company, freeing up valuable resources.

Although this trend is providing an opportunity for growth in the staffing industry, it can be tough to handle the increased need for cash flow. Workers need to get paid on a weekly or biweekly basis. However, it may take up to 90 days or more for the staffing agency to receive payment from its client.. If there’s not enough cash on hand, how can a staffing company make payroll? Thoughts typically turn to traditional bank loans, but this may not always be the best solution. There are several reasons a company may not qualify:

  • Limited collateral
  • Lack of credit history
  • Too much debt
  • Insufficient cash flow

How A/R Financing Can Help

Accounts receivable financing (A/R), also known as factoring, may be the answer. This allows the staffing company to capitalize on  current growth opportunities by obtaining cash in a way that does not require relinquishing any equity in the company. The process is user friendly, meaning that much of the time-consuming work like invoice processing, reporting, posting, and even the checking of payment histories for the staffing company’s potential clients may be handled by the finance company. Another added benefit of factoring is the opportunity to enhance the company’s credit rating. Having cash on hand means that payments can be made on time.

How It Works

First, the staffing agency provides temporary workers to the businesses requesting them. Invoices are issued and submitted to a factor, like Hitachi Business Finance. Those invoices are verified with the customers, confirming that services were rendered. The staffing agency is then advanced 80-90% of the value of those invoices, enabling them to pay their employees on a weekly basis, before payment is actually received from the customer.

The customer sends payment for those invoices to a lockbox that is owned by the factor but payable to the staffing agency. When payment is received, the remainder of the invoice amount is sent to the staffing agency, less the original advance and fee.

A/R financing keeps the cash continuously flowing, allowing the staffing company to keep up with the increased demand for workers. Expenses can be paid and payroll met. The level of financing is based on current needs, growing only with the level of sales.

Invoice factoring infographic

We value the relationships that are developed with each client and we understand the importance of tailoring solutions to fit unique needs. This partnership allows businesses to concentrate more on growth and less on how to meet payroll deadlines.

If your company is ready to grow, contact us at newbiz@hitachibusinessfinance.com or (248) 658-1100.

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