The Benefits of Invoice Factoring for Technology Staffing Firms

There are many types of IT staffing firms. Some technology staffing firms provide temporary personnel for companies involved in short term projects. They don’t want to hire a permanent worker because after the project is completed they won’t need that particular worker anymore.

Other tech companies find that some jobs simply have high turnover. They need tech staffing firms to make sure that they always have someone reliable in that position.

Then there are IT staffing firms which act as recruiters for tech companies. They don’t get paid until the people they recruit are hired. Some tech companies don’t want to deal with the pre-hiring costs, and they use tech staffing companies to find or train good people.

All these types of firms will need lots of working capital in order to operate effectively. Since banks are not always reliable sources of business loans—they take too long, they need lots of collateral, and they don’t often approve of loans in the end—invoice factoring for technology staffing firms has become very popular.

How Factoring Works

Invoice factoring for technology staffing firms is very simple. As a staffing firm, you provide workers for tech companies. You have an invoice for this service, and you sell these invoices to a factor. The factor gives you 70% to 85% of the value of the invoice, so that you don’t have to wait 30 days to get most of your money. You only have to wait 30 days for the rest of the payment. When the customer pays in full, the factor gets back the money they advance to you and then they take their cut. You then get the rest of the payment.

The Difficulties for Tech Staffing Firms

There are many reasons why tech staffing firms are always in need of working capital.

  • Many IT people who work for staffing firms are actually looking for permanent jobs. This is natural, since on average a permanent worker earns considerably more than a worker for a staffing firm. They can work for a tech company for a while even as the company sees if they are a good fit. If that’s the case, they make an offer for the worker so that they leave the staffing firm.
  • This means that staffing firms are always looking for new talent.
  • It’s hard to find new talent, because the best in the field know that they are in such high demand among tech companies. Usually, a good tech worker is already employed, and getting them to work for a staffing company can be hard.
  • To entice some IT workers, staffing firms may offer more reasonable wages and they may want to look for more “exciting” jobs, such as working for a video game company or for a Hollywood firm. All these efforts will cost money.
  • You need to make sure that you have topnotch recruiters. These are the people who approach IT talent, and they need to have the ability to convince talented people to work on a per project basis.
  • With invoice factoring for technology staffing firms, you can make sure that your recruiters and the people they recruit are all paid well so they will want to work for you.

Factoring for Technology Staffing Firms

factoring for technology staffing firms If you run your own technology staffing firm, sooner or later you may run into some problems with your cash flow. Most of your overhead is payroll since you are in the business of providing companies with workers. Each one of those workers usually expect to receive their wages on a weekly basis. But the problem is that your customers will often pay after 30 days. Some may even pay after 60 days. And that’s why factoring for technology staffing firms can be a lifesaver.

How It Works

You can add funds to your cash reserve and boost your cash flow easily with factoring for technology staffing firms. The way it works is simple. The factor takes your invoice and verifies it. You probably have your clients sign the time cards for the billing process. The factor just checks the credit of your client, and then it checks the time cards.

Once that’s done, you can get up to 80% of the value of the invoice right away instead of waiting 30 or 60 days. The percentage may vary depending on the factor. You can then use that money to cover your payroll and other operational expenses. The factor tracks the invoice and does the collecting. When the client pays in full, you get the 20% back minus the fees charged by the factor.

With this process, you can factor just enough invoices to cover your needs. Your other invoices can be untouched. You can then slowly build your cash flow so that you no longer need the services of the factor.

Long Term Factoring

Some companies, however, prefer to actually do business with factors for the long haul. That’s because factors offer services that prove valuable, especially for staffing companies. For example, the matter of collection is handled by the factor. That means you can just focus your efforts on providing the right manpower that your clients are looking for. You don’t have to bother hiring employees to take care of collections. That even saves you more payroll expenses.

Factors can also track and manage your accounts receivable for you. This means you’re also spared from having to hire and pay a receivables clerk to manage the accounts receivable.

Then there is the matter of credit investigation. Factors check that the credit rating of your clients is good, because they don’t want problems in collecting payments. The factors also make sure that your new clients have a good reputation in paying their invoices on time. With their help, you will know which clients have the habit of paying late or won’t pay at all.

Choosing a Factor

It matters which factor you deal with so that you can maximize the benefits you get. The best ones will offer the highest advances and the lowest fees. They are familiar with the industry and they already know which clients are slow to pay or don’t pay at all. Your factor should also be professional when they collect the payments from your clients.

Choose the right factor, and your cash flow problems will be solved.

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