Payroll Funding for Staffing Companies and 7 Things to Know

It may seem like businesses came to a grinding halt during to the Covid outbreak. While that’s true for some industries, others were overwhelmed and needed to hire thousands of employees. This is where payroll funding for staffing companies comes into play.

This presents a huge opportunity for staffing agencies. When businesses need to hire staff quickly, a staffing company needs to be able to ramp up its ability to handle the additional workload.

You may want to hire more staff, but you don’t have the cash flow right now. Payroll funding for staffing agencies is one of the ways you can fund your payroll to grow or to meet these times of growth.

Read on to find out what payroll funding for staffing companies is, how it works, and other ways you can fund your staffing agency quickly.

1. What is Payroll Funding for Staffing Companies?

How much do you have outstanding in unpaid invoices? You probably have quite a bit because it’s typical for staffing agencies to get paid via sending invoices to its customers. Invoices can take anywhere between 1 – 3 months to be paid in full.

In the meantime, you have a business to run. You need that cash to pay your employees or to hire new ones. Without that cash, you’re either stuck and can’t grow or you potentially damage your employee relationships by not being able to make payroll.

Payroll funding is a way to fund the payroll of the business by leveraging your outstanding invoices. You sell those invoices to a payroll funding company who will advance you cash based on the amount of money due from the unpaid invoices. It’s a quick way to solve your payroll cash flow problem.

2. How Payroll Funding for Staffing Companies Works

Does payroll funding for staffing agencies seem too good to be true? Let’s take a look at how it works.

Similar to getting a loan or another type of business credit facility, you have to determine how much financing you need for your staffing agency. It will help if you total up the outstanding invoices for your business that are due from clients. You collect the documentation related to the outstanding invoices and apply for a loan.

Once approved, you could get up to 95% of the outstanding invoiced amount as a loan. When your clients pay the invoices, those payments go to the payroll funding company to pay down the loan.

In most cases, payroll funding companies will fund your invoices and directly collect on them, leaving you out of the collection process. That makes it imperative that you choose the right payroll funding company because an aggressive collector could damage your customer relationships.

3. Payroll Funding Doesn’t Show on a Profit and Loss Statement

One of the key advantages of payroll funding for staffing companies is that it doesn’t show up on your profit and loss statements. In other words, it doesn’t have a negative impact on the financial health of your business.

With other forms of financing, such as credit cards or loans, the outstanding debt shows up as a liability on your profit and loss statement. That doesn’t happen with payroll financing because you’re leveraging existing assets (unpaid invoices) for a cash advance.

4. Payroll Funding for Staffing Agencies Helps Build a Stronger Financial Position

While payroll funding for staffing agencies can strengthen your financial position in a number of ways. It can be used to increase the capacity of your business. As a result, the more capacity you can handle, the faster you can grow your revenue.

It gives you the cash that you need and can be put to use immediately. It’s a very fast way to get an influx of cash to your staffing company without taking on debt that can impact your profits for years.

5. Payroll Financing is Quick

With other forms of financing, it can take weeks or months to get approved. It makes sense because lenders want to make sure that you can pay your loan back. Payroll funding for staffing companies is different because you’re using unpaid invoices as collateral to secure the loan.

For example, you know the money is coming in, it’s just a matter of timing. That can speed up the approval process and allow you to get the cash you need in days, not weeks.

6. Payroll Funding for Staffing Companies is Affordable

Payroll funding companies are different from other types of financing because they are more affordable. Most payroll funding companies will charge a financing fee of 1% to 3% on the funded invoices. As a result, this is better than longer term loans that can cause your business to pay additional interest payments over several years.

7. Other Forms of Payroll Funding for Staffing Agencies

What if you need more cash than you have in outstanding invoices? While payroll funding for staffing agencies is a fast option, other forms of financing may be a better fit for your temp agency.

Line of Credit

A business line of credit gives you access to cash that you repay with interest. It’s a revolving line of credit, meaning that you can borrow up to a pre-determined and agreed upon maximum loan amount.

SBA Loans

The Small Business Administration guarantees several types of business loans. With the guarantee coming from the government, SBA lenders are more likely to approve your loan.

Term Loans

A term loan is like a typical installment loan. However, these loans can be secured or unsecured. You borrow a specific amount of money and pay the principal and interest payments together in monthly installments. These can be short-term loans or long-term loans and the interest rate you pay often is determined by how long the loan is for.

Use Cash Reserves

Cash flow is the lifeblood of any staffing company. Without cash, you can’t cover payroll or keep up with paying bills and other expenses such as payroll taxes. If you don’t have cash, then you just have a financially draining staffing agency. A lack of cash flow is often cited as the reason why most temp agencies close.

If you’ve been fortunate enough to set aside cash reserves for a rainy day, you may be tempted to use them now. The thing is that it’s tough to replace your cash reserves, and once that money is gone, it’s gone. However, payroll funding for staffing agencies allows you to hang on to your cash reserves for a longer period of time and still improve your cash flow.

Payroll Funding for Staffing Companies will Help You Grow Your Temp Agency

Maintaining steady cash flow for your staffing agency is a challenge. If you want to add more staff, pay your employees on time, and take on new customers, payroll funding for staffing companies is an option. In addition, payroll funding for staffing agencies doesn’t impact your profitability.

It gives you the ability to get the money you already earned faster. Interested in payroll funding for staffing companies? Apply today!