Of all the responsibilities that temporary staffing agency owners have, none is more important than payroll. Employees are the lifeline of the business and making sure they are paid in time goes a long way at ensuring your company has smooth operations. Paying employees on time can be very challenging, especially if a client is late with a payment.
Let’s look at a common scenario for a staffing company. A client leases 10 employees for a short term two week contract. At the end of the two weeks the staffing agency will have to pay the employees. Your client, on the other hand, will get an invoice from you and pay it in 30 to 45 days. Unless you have the funds to pay your employees while waiting for your own payment to arrive – you are going to run into a problem. This situation is unfortunately common in the industry.
The obvious way to solve this problem is with business financing. This is easier said than done. Getting a business loan in Canada can be very difficult. Most banks are very conservative and will only make business loans to clients that can show substantial assets and impeccable financial statements. While these are desirable characteristics, the biggest asset that a staffing agency has is its employees. This makes them hard to finance.
If we look at the problem, it’s fairly simple. It’s the payment gap between delivery of services and payment by the client. One easy way to handle this is to use invoice factoring. Invoice factoring provides a funds advance for the invoice. This gives you the funds to meet your payroll and business expenses without having to wait for your client to pay.
Most transactions are structured with two payments. The first payment varies but it’s usually about 85% to 90% of the invoice. This payment is given to you as soon as you submit the invoice for financing. The remaining 10% to 15%, less a fee, is advanced once your client actually pays for the invoice.
One of the big advantages of factoring is that it’s easy to qualify for. The most important requirement is that your client have solid credit and the ability to pay the invoice on time. This makes it a great alternative for growing staffing agencies.
