Temp Staffing Agencies Expand with Accounts Receivables Financing

 By: Lanette Tucker
When temp staffing agencies have problems with cash flow, they have a couple of initial options: apply for a bank loan, or use accounts receivables financing. While bank loans are considered to me more conventional, accounts receivables financing can clearly be the best option.

Temp staffing agencies with cash-flow problems are sure to find that accounts receivable factoring or financing is quite an effective solution, since these agencies do not get paid until they have filled all their job vacancies. Not only that, but temp agencies do not get paid until their recruits have actually worked, significantly hindering a temp staffing agency's cash flow.

Temp staffing agencies also need to advertise effectively, in order to successfully find job candidates to place; advertising done on the agency's dime. The agencies typically only invoice the client after they have recruited someone, and after that person has actually worked, introducing significant delays in cash flow. Temp staffing agencies are typically paid hourly, based on the amount of time their recruit has worked, while they still have to pay their bills. Bills such as payroll, supplies, rent, and utilities need to be paid continuously and on-time, severely restricting the temp agency's cash pool.

Most expenses cannot be abated; it is imperative that companies have enough funds to pay their expenses right away. All businesses need to fund payroll, purchase supplies, and maintain their physical location (rent, utilities, etc.). Temp staffing agencies in particular need to fund numerous advertising ventures in order to maintain proper flow of capital, both human and monetary. With all of these expenses, it is extremely difficult to have all the necessary cash on hand to keep the business running. When met with a tight deadline and the need to secure funds, traditional bank loans may be impractical. Accounts receivable factoring, however, is always practical, and allows businesses to secure funding in a pinch.

Should a company decide to factor their accounts receivables, they will typically be able to secure 90% of their invoices' value within 24 hours. As with most services, the first factoring venture will take longer, normally between four and seven days.

Additionally, temp staffing agencies no longer have to worry about qualifying for a loan. Since accounts receivables factoring is not a loan, the agency simply needs to provide the Factor with the invoices they wish to sell, along with the time sheets of each of their employees. The Factor will then deposit this necessary cash into the agency's bank account within 24 hours, allowing the temp staffing agency to continue operations normally, and without incurring additional debt.
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A factoring company is specialized in funding invoices from businesses with cash flow issues due to slow-paying clients. In order to completely understand the role of factoring companies, you should have a clear idea on what is factoring. Factoring basically involves a transaction through which a business sells its receivables or invoices, to a third party financial source called as a factor.
Because of the uncertainty of top line sales growth, many companies both big and small are loathe to hire new employees. In addition, the legacy costs once you add a new employee and the high cost if that employee does not work out are even larger negatives to hiring.
The basic problem faced with staffing agencies, is that they pay their temp staff on a weekly basis from their balance sheet, but don't receive payment from their contracts regularly - this short fall in cash flow must be addressed in some manner, and invoice factoring fits the bill perfectly. Factoring is a service that a very large percentage of the recruitment industry uses.

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