Staffing factoring, also known as payroll factoring, is a financing tool for staffing agencies that converts unpaid invoices into immediate working capital. Staffing factoring companies will typically advance 85% to 90% of an invoice’s value immediately. The remaining balance will be given to the staffing agency, minus the factor’s fees after the client has paid the invoice in full.
Staffing agencies looking for a factoring partner may want to consider altLINE. It has no hidden fees, rates between 0.5% to 5% and can work with companies invoicing at least $30,000 per month. You can prequalify online in minutes.
What Is Staffing Factoring?
Staffing factoring is financing that converts outstanding invoices into immediate cash. Factoring is different than a term loan or line of credit in that you make no payments with factoring. Your receivables are sold, at a discount, to a factor. Your customer pays their invoice by sending their payment to the factor instead of your business.
Because you’re selling your unpaid invoices, the staffing factoring company assumes the responsibility for collecting on the invoices. Many businesses see this shift in billing responsibilities as another perk of payroll factoring, and factoring is essentially a way to outsource their accounts receivable department.
Who Staffing Factoring Is Right For
Due to the wide variety of positions recruited for and industries served, an agency’s invoices can be paid at unpredictable times. Payroll factoring helps staffing agencies overcome their cash flow management issues. If you are a staffing company with $5,000 to $50,000 per month of outstanding invoices, factoring may be the solution for you.
Staffing factoring is commonly used by:
- General staffing agencies
- Information (IT) staffing agencies
- Temporary agencies
- Health care staffing firms
- Human resources (HR) consulting firms
For the staffing industry, payroll factoring has increasingly become an important lifeline. Agencies typically aren’t paid until placements have been on the job for two weeks, and sometimes three months for executives. That’s a long time to wait for the cash you need to run your business.
This problem can hurt agencies looking to put contract workers, or temp employees, into another organization. They will typically give 30- to 90-day terms to the business they’re working with, but still have to pay these workers in the meantime. However, it can also hurt large executive recruiting firms who often work on a small retainer before they even know if they’ll be paid.
“Recruiting companies that are using a direct hire model won’t have the ongoing payroll obligation of a staffing agency, which can make managing cash flow easier. However, they aren’t without their own challenges. For example, usually, the recruiters will be working on commission only.
“In some markets, or for those placing executive level talent, they may be able to negotiate receiving a retainer in addition to their commission. Still, considering that commissions are reliant on a successful 90-day or longer trial period, that can mean having to float your small business on a 5% to 10% retainer before knowing you’ve locked the 30% to 40% commission. If you offered net terms, locking the position might only start the clock on the 30- to 90-day terms you extended. That’s often further than a 5% commission can stretch.”
— Christy Hopkins, Owner & Principal Consultant, 4 Point Consulting
Some executive firms may not be able to use staffing factoring until after they’ve placed an employee, but all temp agencies will be able to use a staffing factoring product as soon as they place workers. Either way, staffing factoring has become a lifeline for the industry to help them keep their expenses in check while they wait for their customers to pay.
If you find that your business is having difficulty meeting expenses while waiting for invoices to be paid, staffing factoring may be the way to overcome your short term cash flow gaps. For 0.75% to 3.5%, altLINE can turn unpaid invoices into cash within 24 hours, once you’re approved. Get prequalified online and approved within a few days.
Top Staffing & Payroll Factoring Companies
|BlueVine||Businesses with invoice factoring needs ranging from $5,000 to $5 million that need funding within 2 days|
|altLINE||Businesses that need $30,000 to $5 million and have net terms of 30 days or less|
|Paragon Financial Group||Businesses seeking nonrecourse factoring in amounts ranging from $25,000 to $10 million|
|TCI Business Capital||Businesses that need up to $20 million with rates re-evaluated based on performance|
BlueVine offers the lowest advance amount of any of the providers on this list. You can receive advances ranging from $5,000 to $5 million on invoices monthly, with discount rates starting as low as 0.25% per week for qualified borrowers. BlueVine advances 85% to 90% of the value of your factored invoices. To qualify you need a credit score of 530+, $100,000 in annual revenues, and three months of business operations.
With altLINE, you can receive advances of $30,000 to $5 million on invoices monthly, at discount rates ranging from 0.75% to 3.5% per invoice. Rates are set based on the timeliness of customer payments. The faster your customers pay, the lower the rates you will be charged. altLINE requires that you factor a minimum of $30,000 in invoices monthly.
Paragon Financial Group
Paragon Financial Group offers nonrecourse factoring in amounts ranging from $25,000 to $10,000,000, with monthly discount rates between 1.25% to 2%. Paragon Financial Group will advance 80% – 90% of your invoice value. Paragon does not have any formal requirements for credit or time in business to qualify.
TCI Business Capital
TCI Business Capital’s factoring contracts operate on a monthly basis and are re-evaluated each month automatically based on your customer payments. The faster your customers pay, the better the rates that you will receive. TCI Business Capital offers factoring in amounts ranging from $50,000 to $20 million at discount rates of 1% to 4% and does not have formal requirements for credit history or time in business.
How Payroll Factoring Works
Staffing factoring, like traditional invoice factoring, works by funding you upfront for your unpaid invoices. Unlike with traditional loans you generally don’t have to make payments to your Factor. Your Factor will advance you 80% to 90% of the value of your invoice, and pay you the remaining amount, minus the factor’s fees when your client pays.
There are traditionally five steps in invoice factoring, which are:
- Invoice your customer: The first step in the process is to invoice your customer. The net term on the invoice must be 90 days or less for it to be eligible to be factored.
- Assign the invoice to the factor: The invoice is then assigned to the factor company. In the case of spot factoring, you can choose which invoices you want to factor while with contract factoring you are agreeing to factor all of your eligible invoices.
- The factor pays you an advance: Once the invoice is assigned to the factor, the factor company will pay you up to 90% of the invoice, depending on the agreed upon holdback percentage.
- Your client pays the invoice directly to your factor: Your customer remits their payment for the invoice directly to the factor company.
- The factor takes their fee and forwards you the balance: Once the payment from the customer is received by the factor company, the factor company retains their fees and sends the remainder of the holdback back to you to finalize the process.
Staffing Factoring Rates, Terms & Qualifications
As with all invoice factoring, getting the best rates and terms depends not only on the volume of your invoices and how creditworthy your clients are but also the factor’s experience in your industry. Rates, terms, and qualifications required vary between factor companies. It’s important to find best invoice factoring company that best suits your specific needs.
Staffing Factoring Rates, Terms & Qualifications at a Glance
|Amount You Can Borrow|
|Time in Business|
(check your score here for free)
|Time to Qualify|
Staffing Factoring Costs
Staffing factoring is a short-term financing solution, typically having a low total cost of capital, but a high annual percentage rate (APR) as is common with short-term financing. There are two primary components that determine what the overall cost of staffing factoring will be for your business, which are the discount rate and how quickly the invoices are paid.
Discount Rate (0.5% to 5%)
The discount rate, sometimes called the factor rate, is the primary cost of factoring your invoices. The discount rate is a percentage of the value of your invoice that is charged on either a weekly or monthly basis for the period your invoice is outstanding.
How Long it Takes Your Client to Pay Off the Invoice
Many larger factor companies have a tiered system that lowers your costs based on how much you factor each month and how fast the invoice is paid off. If you do a lot of factoring and your customers typically pay within 30 days, then you’ll generally qualify for the lowest rates.
Additionally, many factors have other fees, which makes it important to fully read and understand your factoring agreement before you submit any invoices. These fees can range from a simple $12 wiring fee to an origination fee of $500.
The table below is an example of what your costs could look like when you borrow money through invoice factoring if you’re not charged any additional fees.
Staffing Factoring Costs Example
Smaller firms looking to get accounts receivable (A/R) financing of less than $30,000 per month can typically get a monthly discount rate between 2% to 5% from an A/R financing provider. If you need factoring of $5,000 or more, BlueVine is a terrific choice, with discount rates starting as low as 0.25% per week, you can receive funding in as quickly as one to two days.
Staffing Factoring Repayment Terms
This is what the staffing industry tends to like best about staffing factoring: there isn’t a defined repayment term. The only payment owed to the factoring company is the payment owed by your client. Your factoring fees are netted from the remainder of the advance when the invoice is paid in full by your customer.
If your customer has not paid the invoice on time, the payroll factoring company may ask you to help get your customers to pay. If they are still unable to collect on the bill, you may be held liable for the debt. In many cases, you will have signed a personal guarantee as part of the factoring agreement.
Staffing factoring is typically recourse factoring, meaning if your customer becomes unable to pay, then the factoring company will look to you to pay back the advance amount you received.
altLINE is one provider that uses recourse factoring, which in part allows them to offer competitive rates as low as 0.75%, depending on how much you factor per month and how quickly your customers pay off your invoices. They can qualify you in as little as two days and fund you within 24 hours of being approved.
Staffing Factoring Qualifications
Typical qualifications for staffing factoring include having a minimum of $30,000 per month of invoices due within 90 days, having been in business for two or more years and without serious legal or tax problems. Your customers must also be deemed creditworthy by your factor; a history of prompt payments from a customer makes their invoices factored more easily.
The typical qualification requirements for staffing factoring are:
- Invoices: Sufficient invoices due within 90 days to meet the minimum threshold of the factoring company
- Time in business: Generally at least two years, although some providers have more lenient requirements
- Creditworthy customers: Invoice factoring relies on your customers paying their invoices for the borrowed funds to be repaid; some companies even offer better rates if your customers pay faster
Smaller staffing firms who invoice less than $25,000 per month may find that invoice factoring with BlueVine is a great fit. BlueVine offers factoring in amounts as low as $5,000, with rates starting at 0.25% per week. You can apply easily on its website and receive approval within 24 hours.
Pros and Cons of Staffing Factoring
With the often unpredictable nature of customer payments, staffing factoring can ease a company’s cash flow woes by taking the guesswork out of when a customer will make their payments. Alternatively, staffing factoring could become burdensome if your customers don’t pay their invoices in a timely manner.
Pros of Staffing Factoring
The benefits of staffing factoring include:
- Getting paid quickly: Once you’ve been approved for any type of invoice factoring, you’ll typically get your funds within 24 hours of assigning an invoice
- Ability to take on new clients: Some firms need to get paid on their previous work before they can afford the costs of new clients; staffing factoring solves this problem by providing funds prior to your customers paying their invoice
- Focus on growing your business: Larger firms can use invoice factoring as a way to completely outsource their accounts receivable process; this could save company time and resources that can then be refocused on growing your business
- Have predictable cash flow: Service businesses tend to have an erratic cash flow cycle due to the unpredictability of when their clients will pay invoices; factoring all of your invoices will give you the knowledge of exactly how much money you’re getting and when
- Offer competitive salaries to clients: Many temp agencies find themselves without the cash needed to pay temporary employees a competitive wage; better cash flow can make offering competitive wages easier to do
Cons of Staffing Factoring
Some of the negative aspects that you may encounter with payroll factoring are:
- Being charged a fee: In exchange for the advance on your current invoices, you agree to pay a fee; the invoices are for work that has already been done, and/or goods that have already been sold; the fee, which is typically between 1% and 5%, can add up over time.
- You may be liable for payments: If you have a recourse agreement with your factor company, you are liable for the amount of the invoice in the event that your customer fails to make their payment.
- Your credit doesn’t determine your rates: In many cases, your rates are determined based on the creditworthiness of your customers; the more promptly your customers pay their invoices, the better the rates that you are eligible for.
If you’re ready to factor your invoices for your staffing firm, our recommended factoring company is altLINE. It’s experienced with staffing agencies and is familiar with how your contracts and payments work. It offers rates as low as 0.5% and can fund within 24 hours of an invoice being assigned.
Alternatives to Staffing Factoring
Staffing factoring is generally going to come from larger financial institutions that want to partner with firms that are looking to factor a minimum of $5,000 to $50,000 per month. Smaller staffing agencies, or those who are relatively new, may want to consider seeking an A/R financing company, or a short-term business loan.
1. Accounts Receivable Financing
Small to medium-sized firms looking to do fewer A/R financing than some factoring companies require, can get their cash flow needs met by partnering with firms like Fundbox for A/R financing. If you would like to review other A/R financing possibilities, read our article featuring the best accounts receivable financing companies.
Staffing Factoring vs Accounts Receiving Financing at a Glance
2. Short-term Business Loans
Another financing option for staffing agencies that are looking for a boost to their working capital is a short-term business loan. With a short-term loan, you receive the entire amount of the loan up front, and your monthly payments and repayment term are fixed, providing you with increased ability to budget for the cost of capital.
Staffing Factoring vs Short Term Business Loans at a Glance
a lot of invoices
invoice as much
disbursed at closing
|Time in Business|
(check yours for free)
Staffing Factoring Frequently Asked Questions (FAQs)
A lot of information has been covered in this article about staffing factoring, what it is, how it works, the rates and terms you may be eligible for, and where you can apply. If you have any questions about any of the information presented here, you can post them in the FitSmallBusiness forum.
How Does Business Factoring Work?
Factoring is a financing method in which your invoices are sold to another company, called a factoring company. The factoring company advances you a percentage of the invoice immediately, and the remainder when your customer pays the invoice. This gives you access to the invoice’s value as working capital prior to the invoice being paid.
What Is Payroll Factoring?
Payroll factoring, also called staffing factoring, is financing that converts outstanding invoices into immediate cash. Your current invoices are sold at a discount to a factoring company. The factoring company issues you immediate payment of your invoices, and your customer then pays their invoice by sending their payment to the factor instead of your business.
What Is a Factoring Company?
A factoring company purchases invoices from another business at a slightly reduced or discounted value. In exchange, the factoring company pays the business for a percentage known as the advance rate, which is typically 85% to 90% of their invoice up front and pays the remainder when the business’ customer pays off the invoice in full.
The Bottom Line
Staffing factoring can help staffing agencies of all sizes overcome short-term cash flow gaps by getting paid for invoices up front, without the worry of when their customers will pay their invoices. Small firms, with less than $30,000 of invoices per month, should consider using an A/R financing company like BlueVine. Larger agencies should consider using our recommended staffing factoring provider, altLINE.
altLINE is a leading invoice factoring company with a lot of experience in the staffing industry. It offers rates between 0.5% and 5%, depending on how much you factor per month and how fast your invoices are paid off. Applying is easy, you can get approved in two to seven days, and be funded within 24 hours after that.