How The Staffing Industry Benefits From Factoring Services

Staffing agencies provide an invaluable service to their clients and employees.

Staffing agencies offer employers a wide and diverse range of benefits. Employers do not have to hire a full-time employee, in order to obtain good help. Employers do not have to struggle with the accounting that accompanies regular employees, such as employment taxes, workman’s compensation insurance, etc. Employers can try several people in the process of finding the right people to fill the positions within their company. Employers don’t have to worry about dealing with the emotional issues of layoff. Employers can increase or lower their staff, as the day-to-day fluidity of their business requires.

Employees benefit as well, because they have access to employment that provides flexibility around their personal lives. They can pick up a part-time job and work around school, family and other issues that might direct their lives. They can try out different kinds of jobs to see what kind of work they would be happy to do. They can maintain a certain level of income, while they seek full-time employment elsewhere.

Unique Management Needs of Staffing Agencies

Staffing agencies have their own internal employees, account managers, sales people, bookkeepers, staff liaisons, etc. And then they have their staffers, who have diverse needs, skills and schedules.

The staffing agency, and private security guard companies, are two industries where managers are challenged simply to keep warm bodies in the right places at the right times to ensure that they can satisfy the staffing requirements of their customers.

These two industries are uniquely challenged in that they supply “people” to fill jobs. They need to have people with diverse skills available for employers on a moment’s notice, sometimes a day in advance and sometimes an hour in advance. They must be able to ensure that they have the right people available to fill the right positions, and they must be able to do so consistently enough to ensure that those people will remain available to them.

Good Cash Flow Management Is Essential To The Survival Of Staffing Companies

Employees must be paid on payday, no matter what the business model the employer uses.

While product and service companies can usually get extended terms with their providers, staffing companies do not have that kind of luxury. With staff being their primary cost of doing business, they must establish a more reliable cash flow system.

Staffing and private security companies typically pay their people by the week, so they must have cash on hand to pay their staff on a weekly basis. As such, the terms they offer to their own clients usually do not exceed seven days.

The system works well, when the staffing company’s clients pay on time, but when they do not, these expenses can quickly become a real burden on the company who has to engage in the collections process in order to get paid for their services.

Accounts Receivable Factoring Companies Also Provide An Essential Service

Factoring is a kind of commercial financing that most business managers do not realize is available to them.

Many businesses, staffing and private security firms included, must provide financing to their customers in order to keep their sales steady and consistent. But, anytime a company extends financing to their own customers, they are taking a risk that they may not get paid in a timely manner, if at all.

The factoring service company is a finance company that specializes in financing invoices. The provider of a product or service, and in this case the staffing services, will issue an invoice to their clients and immediately assign the invoice to the factoring company. The factoring service will do an analysis of the credit of the end-customer, and it will advance a percentage of the value of the invoice to the staffing company.

When a service company initially contracts a factoring service, there may be as much as a seven- to ten-day turn-around window, before the factoring service sends the money to the service provider. Once that initial application window has been covered, most invoices will be paid to the provider within 24-72 hours.

The factoring company will advance the provider a percentage of the face value of each invoice, based on the credit history of each of the provider’s customers. Generally, the percentage paid upfront will be in the range of 80%-90%.

This permits the staffing company or private security firm to receive payment for most of the invoice’s value, almost immediately.

The factoring company works to ensure that the invoice will be paid in a timely fashion, and if the invoice remains unpaid for an extended period of time, then the factoring company will serve as the collection agency.

Once the factoring company is paid in full for the amount of the invoice, they will receive the invoice discount rate (their service fee), which is frequently between 2%-5% of the invoice’s value, and they will send the remaining difference to the original service provider.

This means that the staffing agency could receive as little as 80% of the face value of the invoice immediately, and then when the client pays their bill, the staffing agency will receive the remaining money due to them.

Accounts Receivable Financing Supports The Growth Of The Staffing Industry

In today’s modern service economy, the staffing industry is an essential element ensuring that individual companies can meet their production needs on schedule. This is true whether we are talking about private security firms, day labor staffing agencies, medical services staffing, information technology staffing, etc.

As essential to the continued growth of our economy as the staffing industry, is the commercial credit industry. Factoring companies provide the cash that commercial enterprises need to keep paying their own bills on time and growing their business.

If you are involved at some level in the staffing industry, please take as much time as you need to review the factoring services offered by Diversified Financial Services. DFS specializes in helping firms, involved in the staffing industry, to better manage their cash flow needs.

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