How to Choose a Staffing Factor

Factoring today is one of the most popular forms of financing. It’s essentially a very effective way to make use of your accounts receivable (AR) to get the funding you need much more quickly. But a staffing factor needs to bring more to the table than just what a generic factor offers.

Factoring involves the sale of invoices for hard cash (or for a line of credit). You get about 80% of the value of the invoice right away instead of waiting for the invoice to mature in 30 days or more. The rest of the value of the invoice is sent to you (minus the fees of the factor) once the customer pays in full.

Here are some ways for you to find the most suitable staffing factor for your company:

  1. Lower fees. Regardless of what industry you’re in, this consideration is crucial. The fees may range anywhere from 2% to 6% of the value of the invoice, and this can seriously cut into your profit margins.

Then you also have to consider additional fees, such as startup fees along with penalties should your customers fail to pay their accounts on time. A staffing factor should make allowances for the time needed for your customers to pay, so you don’t pay additional fees unnecessarily.

  1. Higher advances. The factoring advances usually come to about 75 or 80 percent of the value of the invoices. But for a staffing company like yours, a higher percentage for the advance can be very useful.

You need a lot of working capital to run your business, and the payment model with your customers usually becomes a hindrance. For example, it’s not unusual for your customers to take 60 days to pay up, and that means you’re going to have to use up your cash reserves paying your employees for 8 weeks. The weekly payment schedule for your employees, versus the 60 days needed by your customers, is the most common cause of working capital shortage.

Then there are also the growing difficulties in getting more workers due to low unemployment. You’ll have to spend more money in advertising to get more workers, because so many workers prefer working full-time for a company.

Add the various taxes and insurance payments you have to meet, and the need for ready cash becomes apparent.

  1. Faster services. Factoring companies are famous for the speed in which they approve (or decline) funding applications. But some factors are truly faster than others. While some may take a week to approve an application, others only need 24 hours. For a staffing company in desperate need of cash to cover payroll by the end of the week, even a few days’ delay can have terrible consequences.

It’s the same problem when the factoring line is in place and you need to get your advance quickly. Some factors need a few days before they can give you the advance. But others offer same-day financing.

The top staffing factor may also provide additional services. But for a staffing company, the quickness and the amount of the advance they can get, along with the cost of the services are the most important considerations.

Need Working Capital? Call 1-888-382-3766 or visit our main site for an instant quote by clicking here

Published by

Chris Lanchech

Hi everyone, my name is Chris and I am a junior analyst at Neebo Capital and an inspiring blogger. We enjoy speaking with business owners and entrepreneurs who come to Neebo Capital looking for cash flow solutions. Give us a call toll free at 1-888-382-3766 or Visit us online at www.neebocapital.com

Leave a Reply

Your email address will not be published. Required fields are marked *