Staffing factoring (aka payroll factoring) is a financing tool for staffing agencies that converts unpaid invoices into immediate working capital. Staffing factoring companies will typically advance 85-90% of an invoice 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. They have no hidden fees, rates between 0.5% – 5%, and can work with companies invoicing at least $30K per month. You can pre-qualify online in minutes.
What Staffing Factoring Is
Staffing factoring is a form of financing that converts outstanding invoices into immediate cash. Factoring differs from taking out a term loan or line of credit in that you make no payments with factoring. You simply sell your receivables at a discount to a factor. Your customer pays their invoice like normal, except they forward the payment to the factor instead of your AR department.
Because you’re selling your unpaid invoices, the staffing factoring company assumes the responsibility for collecting on the invoices. Many agencies see this shift in billing responsibilities to be another perk of payroll factoring and it’s essentially a way to outsource their accounts receivable department. Doing so let’s them stay lean and clean up their cash flow.
Staffing factoring is commonly used by:
- General staffing agencies
- IT staffing agencies
- Temp agencies
- Healthcare staffing firms
- HR consulting firms
- And more…
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 2 weeks, and sometimes 3 months for executives! In fact, in 2013 the average invoice was paid in 35 days, but today it’s as high as 90 days. 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 30-90 day terms to the business they’re working with, but still have to pay these workers in the meantime. But 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. But 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 5-10% retainer before knowing you’ve locked the 30-40% commission. If you offered net-terms, locking the position might only start the clock on the 30-90 day terms you extended. That’s often further than a 5% commission can stretch.”
— Christy Hopkins, Owner & Principal Consultant at HR Consulting and Recruiting firm 4 Point Consulting
Staffing factoring is a solution that can help both of these types of staffing firms find the help they need to overcome their short term cash flow gaps, if they have a guaranteed invoice. For example, 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.
You can start the application process and start using staffing factoring as a way to overcome your short term cash flow gaps. For 0.5% – 5%, altLINE can turn unpaid invoices into cash quickly. Whether your client will pay you in 10 days or 90, altLINE can help you avoid cash flow crunches by paying you within 24 hours, once you’re approved. Get pre-qualified online and approved within a few days.
Staffing Factoring Rates, Terms, & Qualifications
As with all invoice factoring, getting the best rates and terms depends not only on the volume of invoices you’re factoring and how creditworthy your clients are, but also how familiar the Factor is with your industry.
Let’s take a look at typical rates, terms, and qualifications for payroll factoring in the table below, then dive into the details.
Staffing Factoring Rates & Terms at a Glance
|Amount You Can Borrow|
Invoices due in 30, 60, or 90 days
No outstanding legal or tax issues Creditworthy customers
|Time to Qualify|
Staffing Factoring Qualifications
You will typically qualify for staffing factoring if you have a minimum of $30K per month of outstanding invoices that are due within 90 days, have been in business for 2+ years, and have no serious legal or tax problems.
Your customers must also be deemed creditworthy by your Factor, which means they have no red flags that make them a risk to not pay on time. If you have a long history of receiving timely payments from a customer, then their invoices will be more easily factored.
Smaller staffing firms who invoice less than $30K per month may need to look at a slightly different invoice-based financing product to get approved, called accounts receivable financing.
AR financing company like, Fundbox, are able to qualify newer agencies (just 6 months) and will consider funding amount as small as $1k.
Staffing Factoring Costs
The cost of factoring an invoice is going to depend on 2 things:
- Discount Rate (0.5% – 5%):
Sometimes called your factor rate, your discount rate is the primary cost to borrowing money with 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 factors 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 often have other fees. Some of these fees are less than obvious, 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
|Repayment Time||60 Days|
Smaller firms looking to get accounts receivable financing of less than $30K per month can typically get a discount rate between 2% – 5% per month the invoice is outstanding from an AR financing provider.
Invoice factoring is a short term financing solution, and as such, it typically has low total cost of capital but high APR. This is a common feature of any short term business financing options. Prime borrowers with established businesses may be able to find lower APR products with their bank.
Staffing Factoring Repayment Terms
This is what the staffing industry tends to like best about factoring: there really isn’t a repayment term. At least, not in the way there is with a business loan or line of credit. The only payment owed is the payment owed by your client, and nothing has changed about that payment other than who they will pay.
The one caveat here is if your customer fails to pay the invoice that the factor bought from you. 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.
If your customer has not paid the invoice on time, the payroll factoring company may look to ask you to help get your customers to pay. After that, if they are still unable to collect on the bill, you may be held liable for the debt. And in many cases, you’ll have signed a personal guarantee as for of the factoring agreement.
altLINE offers staffing factoring with competitive rates as low as 0.5%, 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 2 days, and fund you within 24 hours of being approved.
How Payroll Factoring Works
Staffing factoring works like traditional invoice factoring by funding you upfront for your unpaid customer invoices. Unlike with traditional term loans, or LOCs, you generally don’t have to make any payments to your Factor. Your Factor will advance you around 90% of your invoice’s value, and pay you the remaining 10% when your client pays, minus the Factor’s fees.
There are traditionally 5 steps in invoice factoring, which are:
- Invoice Your Customer (Owed Within 90 Days)
- Assign the Invoice to the Factor
- The Factor Pays You an Advance (Up To 90% of Invoice’s Value)
- Your Client Pays the Invoice Directly to Your Factor
- The Factor Takes Their Fee and Forwards You the Balance
Benefits of Staffing Factoring
Due to the wide variety of positions recruited for and industries served, an agency’s invoices can be paid at unpredictable times. This can make managing an agency’s cash flow very difficult. Payroll factoring can help staffing agencies overcome their cash flow management issues.
Staffing factoring benefits include:
- Get 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.
- 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 not having to wait for your customers to pay before you get paid.
- Focus on Growing Your Business: Larger factoring firms can use invoice factoring as a way to completely outsource their accounts receivable process. This could save time that can then be refocused on growing your business.
- Have Predictable Cash Flow: Service businesses tend to have an unpredictable cash flow cycle because of the unknown 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, that they must hire directly, a competitive wage. Better cash flow can make offering competitive wages easier to do.
If you’re ready to factor your invoices for your staffing firm, there is no one we recommend over altLINE. They’re experienced in the staffing agency, and are familiar with how your contracts and payments work. They offer rates as low as 0.5%, and can fund within 24 hours of an invoice being assigned.
Staffing Factoring vs AR Financing
Staffing factoring is generally going to come from large banking institutions that are wanting to partner with firms looking to factor a minimum of $30K-$50K per month. If you currently have a strong banking relationship with a large national or regional bank, ask them if they offer factoring services. If they do, they might be able to give you the strongest rates and terms as they’re already familiar with your business.
Smaller staffing agencies or those who are relatively new can generally find the right accounts receivable financing company online. Firms like Fundbox and BlueVine will meet the needs of small to medium sized firms looking to do less receivables financing than what a bank will accept.
Let’s take a look at the comparison between the two types of staffing factoring companies and what their typical terms look like. We will look at our recommended staffing factoring company, altLINE and our recommended online AR financing provider, Fundbox.
Staffing Factoring vs AR Financing at a Glance
Invoice B2B or B2G customers
No outstanding legal or tax issues
due date (30-90 days)
weekly for 12 or 24 Weeks
Staffing Factoring vs Short-Term Loans
Another financing option for staffing agencies is a short-term business loan. The table below shows the basic comparison between getting staffing factoring through altLINE and getting a short term loan from our recommended provider, OnDeck.
Staffing Factoring vs Short Term Business Loans at a Glance
a lot of invoices.
invoice as much.
|Advance Rate|| |
disbursed at closing.
Invoice B2B or B2G customers
$30K+ Monthly Invoicing
500+ Credit score
(check yours for free)
$100K+ Annual Revenue
invoices due date. (30-90 days)
daily or weekly. (1-36 months)
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 the invoice will be paid. Small firms, doing less than $30K of invoiced business per month, should look at using an online AR financing company like Fundbox. Larger agencies should look at using our recommended staffing factoring provider, altLINE.
altLINE is a leading invoice factoring company with lots of experience in the staffing industry. They offer rates between 0.5% – 5%, depending on how much you factor per month and how fast your invoices are paid off. You can get approved in 2-7 days and funded within 24 hours after that.