Article by Paragon Financial
Often, when a temp agency is having cash flow problems they have two primary options, apply for a business loan and hope for the best or use invoice factoring. Below, we will discuss why the latter may be the best choice.
Companies that bill their clients will often find invoice factoring to be an effective way to address their cash flow problems. This is true for temp staffing agencies. Because temp agencies do not receive payment from their clients until after they have filled their job vacancies and those persons have worked, they may sometimes have problems with cash flow.
Temp staffing agencies are forced to pay for the advertising necessary to successfully place job candidates, on their dime. They only invoice the client after they have found a suitable worker and that individual has worked. This means that they have to wait before they receive the payment. Temp agencies are often paid per hour, based on the number of hours their placement has worked. All the while, they have to pay their bills. Payroll, rent, supplies and advertising costs must be paid right away and without fail. Subsequently, this can put a temp agency in a real cash crunch.
Because many of a temp agency’s expenses cannot be put off, it is essential that they be able to secure money right away. For example, businesses need to pay each of their employees, including rent and utilities. All companies need supplies, and so temp agencies will have to be able to raise the money necessary to purchase those. An agency must also have cash on hand to advertise job openings. Because of this, waiting around for a business loan may not be feasible or practical. For these businesses, the sooner they can get money, the better. This is why invoice factoring may be the ideal choice.
When a company chooses to use invoice factoring to generate cash, in many cases, they will be able to secure up to 90% of their invoices’ value within 24 hours. Of course, if this is the first time that an agency works with a Factor, it may take a little longer, generally between four and seven days.
Temp agencies that suffer from cash crisis, even only occasionally, would be wise to learn as much as they could about factoring and then use this form of factoring when the need arises. It is an excellent way for a business to get money when they need it. Payments can be delivered, often, within 24 hours after a relationship has been established with a Factor.
Temp agencies no longer have to worry about qualifying for a loan. They need to provide the Factor with the invoices they wish to sell along with each employee’s time sheets. They will then be able to deposit cash into their bank account within 24 hours. This will allow the temp agency to meet its monthly obligations without taking on new debt.