What is Payroll Funding Factoring (or Payroll Loans or Financing)
Rather than viewing factoring as a simple cash flow financing solution, some agencies view it as a tool for funding payroll. Most staff members, whether W2 or 1099 employees, want to get paid by your agency before your client pays its invoice. You need excess cash to meet payroll while waiting for your clients’ payments.
Payroll is one of the largest expenses for a staffing agency or temporary services firm, and sometimes, several pay periods may even occur before a client’s first invoice is due. Using payroll funding factoring frees up the working capital in customer invoices immediately, ensuring that an agency has adequate cash reserves on hand to meet payroll and related expenses.
Factoring as a Cash Flow Solution
Factoring invoices can free up the working capital your agency needs to meet payroll and expenses so that you can land new business or take on bigger client accounts more quickly. Since staffing and temporary employment agencies often invest a considerable amount of resources in recruiting, hiring, and placing candidates before a customer’s first invoice is even generated, this can be an ideal way for your agency to ensure that cash flow keeps pace with operational costs.
Agencies that factor invoices to expedite cash flow improve their ability to meet operational expenses and fund payroll, but that’s not all. Agencies that factor can also use improved cash flow to negotiate discounts with their suppliers and extend generous payment terms to clients as a competitive advantage. This could be key for a growing agency, especially in their efforts to land new and potentially larger accounts or even place more employees with an existing client.
