Why Staffing Factoring Works Best for Recruitment Agencies

The recruitment and staffing business is one of the most vibrant industries in the world. In the United States, the staffing industry accounted for $117 billion in sales in 2012, according to the American Staffing Association.  In Canada, the industry is worth more than $7 billion.


The industry performs even better when the economy picks up as companies expanding need more manpower for their operations. But it does not mean that staffing companies are immune to financial problems. Since the clients of recruitment companies typically pay within 30 to 90 days, staffing firms are prone to cash flow challenges. Likewise, there are seasons when sales are low. Staffing factoring is a practical solution for recruitment firms that experience cash flow challenges.


Staffing companies are engaged in various employment-related services. These include providing recruitment and permanent placement of workers, outsourcing and outplacement, as well as training and human resources consulting.


Financial Issues


These companies often face unique issues when it comes to finances.  One is the cash flow problem. Staffing firms directly pay the workers they have hired, usually on a weekly or biweekly basis. In turn, these companies bill their customers after a month. Most customers pay after 30 days but slow paying clients do so after 90 days. Thus, recruitment firms face liquidity problems as they need to pay for their workers. Of course, these firms also have to deal with other expenses like rent and payment for utilities.


Recruitment agencies also experience cyclical sales patterns. Companies traditionally don’t hire workers during the last quarter of the year, for instance. Most staffing firms avoid getting a banking loan as it takes time to process and only adds up to the company’s debt. Simply put, cash flow problems can slow down a recruitment agency’s growth.


Invoice Factoring


Staffing factoring is considered a more practical financial solution for cash-strapped recruitment agencies.  Also called invoice factoring, this financial solution requires a recruitment agency to turn in their invoices in exchange for cash. Unlike bank loans, factoring takes only a few days to process. It also comes in flexible terms and rates.


Companies that apply for factoring can get cash in as fast as 24 hours, especially if they have established a favorable relationship with the factoring agency. Recruitment firms applying for the first time may have to wait for 4-7 days to have the money deposited into their accounts. Factoring agencies look at certain considerations like creditworthiness of the recruitment agency and value of the accounts receivable in approving an application.


Apart from providing cash for day-to-day operations, invoice factoring provides numerous benefits to recruitment agencies. The money can be used by the recruitment agency for expansion, like hiring another sales executive who can bring in more clients. It can also be used for advertising to reach out to more job candidates. Staffing factoring also does not require the recruitment company to put up collateral. Finally, the money received from invoice factoring is typically higher than what a company would be able to borrow from a bank.


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