Financing a Temporary Staffing Company
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How to Obtain Funding For Temporary Staffing
If you want to start your temporary staffing company but are concerned about sufficient working capital, this article will show you how to use other people’s money smartly to become an entrepreneur.
It’s important to utilize as much savings as you can afford to invest, but also using other people’s money, whether through loans, selling equity, unsecured credit lines, or factoring, can be a savvy business decision for several reasons.
Leveraging external capital allows businesses to scale and grow more rapidly than relying solely on savings. By accessing additional resources, start-up temporary staffing businesses can expand recruiting efforts, create new service innovations, and increase marketing initiatives that increase sales.
Invoice Factoring as an Accessible Staffing Funding Solution
Funding your new temporary staffing business through invoice factoring involves leveraging your customer invoices to secure immediate cash flow. It’s essential to carefully structure your invoicing process and choose a reputable factoring company to effectively unlock the funds tied up in your outstanding invoices.
Not familiar with invoice factoring? Let’s cover why this tool is widely used in the temporary staffing industry. Invoice factoring, a.k.a. “factoring,” is when a third party (the factor) buys an invoice from a business, providing the business with immediate working capital in exchange for a small discount. How does this help the start-up temporary staffing company?
Once an invoice is generated, you “sell” the invoice to the factoring company. In exchange, the factor will provide you an initial advance (generally a wire transfer the following day) against the gross invoice amount (often as high as 90%). In your customers’ ordinary course of business (when they are ready to pay the invoice), they remit the payment directly to the factor. Once the factor receives the payment, they recover the amount advanced (say 90%) plus their earned discount (let’s say 1.50%), and then they would remit to you the remaining balance (an additional 7.5%).
To learn more about this straightforward funding service, you can read the following articles:
Invoice factoring can be a game-changer for a start-up temporary staffing company. It provides the necessary funds weekly to cover the most significant expense: payroll. This financial strategy can bring relief and stability to your business operations.
Invoice Factoring as Your Core Financial Strategy
So, what’s the strategy for making factoring work for a start-up temporary staffing company? It’s all about how you structure the invoicing to your customers and schedule payroll.
Let’s dive into the details of each.
Invoicing
After the billing period ends (ideally after seven days) and you have collected all your employees’ timesheets (which should be done through a mobile application), you will have all the information needed to create an invoice and bill your customer.
Once the invoice is completed, it should be sent to your customer. Don’t wait; invoice immediately and ensure it is sent to the correct parties.
While you and your customer may have agreed on payment terms (net 15/30/60), there should be no prohibition on submitting the invoice with the net terms starting upon the date the invoice was generated and/or received by your customer. This may take some negotiation, but it’s a critical requirement to access weekly funding from a factoring company.
Good invoicing habits:
- Ensure you know who pays the invoices and have all contact information;
- Ensure you know where the invoices are to be submitted;
- Ensure you know what your customer may require within the invoice to ensure timely payment and what other items they may need for timely processing;
- Get confirmation that they receive your invoice (via email)
If you have established a partnership with an invoice factoring company, you will have a procedure for submitting a copy of the invoice along with supporting documentation to the factor. This enables them to schedule a purchase date and fund your payroll.
Payroll
Many employees are accustomed to receiving their paychecks bi-weekly, but your customers usually take longer to pay than two weeks.
An invoice factoring company prevents cash flow problems by advancing funds once the invoice is submitted to the customer.
If you’re invoicing weekly (thereby immediately accessing 90% of gross sales) when payroll is due, you have two weeks of liquid invoicing available to cover it. Problem solved!
Are you interested in learning more about using invoice factoring to fund your business? Feel free to contact us or request a quote—we’re happy to help!