Slow-paying customers create cash flow problems for many business owners and make funding payroll and the ability to hire more staff workers very difficult to support growing businesses. Contract and temporary workers are often paid on a weekly or biweekly basis, however the customers you contract with pay on a 30, 60, or 90-day basis.
This lag creates a significant cash-flow gap. In many cases, based on the demand created by your customers, your payroll obligations can be compared to an accordion: in some weeks it may be much larger than others, but it is always a moving target based on the number of workers you have deployed at your customer’s businesses.
One of the most effective ways to solve your working capital issues is to convert outstanding invoices into immediate cash by factoring your accounts receivable. Unlike a fixed line of credit, factoring provides you with the flexibility to call for working capital when you need it and also takes the uncertainty out of your cash flow.
According to the American Staffing Association, around three million temporary or contract employees work for America’s staffing companies during an average week. Over the course of a year, staffing companies typically hire 16 million temporary and contract workers. As the staffing industry continues to grow, so has the need for flexible funding solutions. In order to recruit more workers to fill positions, staffing agencies must have the necessary cash flow to bring on new employees.
Staffing agencies provide part-time or full-time workers to a variety of companies. These arrangements often mean you will be paid for your services between 30 to 90 days of placement. Cash flow issues are common with temp agencies and securing bank financing can be difficult. Some industries our clients have provided temporary staffing services to include:
If you plan to secure new contracts with larger companies, you need to be able to meet your weekly payroll obligations and the terms of payment prescribed by your new customers. In addition, you have other expenses to worry about, including rent, utilities, and office supply bills. Staffing agencies must often wait for their receivables to age before they receive payment for the employee’s hours.
By factoring your accounts receivable with Capstone, you will be able to:
The following case study demonstrates the power of staffing agency factoring:
Company Background: The company offers software development, IT solutions, and provides staffing to several clients across the United States. Their sales exceeded $2,000,000 per year. However, they were facing two primary challenges: meeting weekly payroll requirements and increasing revenue.
The solution we offered was simple: Capstone provided a two-year non-recourse factoring facility to allow the company to meet its payroll obligations while growing sales. Once the credit of the customers was approved and funding occurred, the company was able to achieve its growth in sales, meet their payroll obligations, and has continued their relationship with Capstone.
One of the challenges a temp agency often faces when applying for funding is the lag between when they place a worker and when they are paid for the services provided. Because of this, many temp agencies often face issues when seeking bank loans. Temp agency factoring works well because it allows these agencies to secure the financing they need without the worry of taking on debt. This also means the agency’s balance sheet is stronger while they have the cash flow necessary to grow their business and serve their customers effectively.
Because of the unique position a temp agency is in, it is often difficult to find someone who understands the business structure and is willing to provide staffing agency funding. This is why Capstone is committed to helping provide a customized proposal based on your specific needs.
If you operate a temp agency, we can help you find the right solution for your business. We will carefully review your sales, discuss your unique cash flow needs, and help arrive at a solution that provides you the capital you need to meet your obligations and grow your business.
We do not take the same process of underwriting a financing request a typical bank does. Capstone focuses on the creditworthiness of your customer, and not on the credit score of your company. Factoring allows a company with a short track record to continue to thrive and grow without taking on debt. At Capstone, we understand the faster you can get paid for your invoices, the more opportunities you can take to grow your company.
Staffing agencies need not struggle to meet their payroll obligations, nor be held back because of a lack of capital. Capstone can help you accelerate your business cash flow. Call us at (212) 755-3636. Let one of our highly-trained representatives review some of the options we offer and help craft a specialized plan to help you accomplish your long-term company goals.
