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Is Factoring Right for Your Staffing Company?

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By Dale Busbee

The margins in staffing tend to be smaller than many other industries, and in order to remain competitive in the marketplace, staffing companies must price their services at rates that the market will accept. There are many regional and national companies that will “buy” staffing business in order to gain or keep market share. The independent staffing companies that survive are the ones that have excellent customer service, while keeping their prices in line with the larger firms.

Which brings us to the question of whether factoring is right for your staffing company. Let’s assume you have been self-funding your firm from inception, then you get a job order for, let’s say, 100 new temps. These may be for positions that require highly skilled and very highly compensated professionals. You have the database of readily available candidates, yet your client will only pay your invoice after 5 weeks. If each candidate commands $35 per hour, and you are able to bill $50 per hour, for an average 40 hour week, your payroll for 100 temps would be $140,000. Multiply that by 5 weeks, and the capital needed to pay your employees before you get paid from your client is $700,000. Wow, not many staffing owners can find that amount of change in their sofa cushions!

Let’s examine the options. Assuming you have $700K in the operating account, you accept the job order gladly, send the temps, and wait 5 weeks for payment. Probably the easiest and least expensive option. 2nd option - check availability on bank lines of credit, credit cards, and any other lines of open credit, and hope it is enough to cover payroll for 5 weeks. 3rd option, ask your banker to increase your line of credit, and hope it gets done in the next 3 months. 4th option, take out a second mortgage on your home, car, or any other assets that are not sufficiently encumbered at this point, and pay those notes off when you get paid from your client.

The 5th option to consider is factoring your accounts receivables. This may be a viable option, once considering time value of money and opportunity cost of not taking on a new client. At a $50 bill rate, and a $35 payroll rate, the total margin for 100 employees in a 5 week period is $300,000. That could buy a few hamburgers these days! Let’s say your cost of factoring was 2.5%. Billings for 5 weeks would be $1,000,000. 2% of that amount is $20,000. Would you spend $20,000 to earn $300,000?? Most of us would. And the best part is no loans, no tying up of collateral, no worries about credit lines, no hassles, JUST POSITIVE CASH FLOW.

This is a very simplified example, yet the concept would apply to most staffing situations. Payroll funding and factoring can be a very easy solution that will allow you as a staffing owner to take on new business and maintain a positive cash flow while waiting for clients to pay your invoices.

If you would like to discuss your situation, please contact Dale Busbee, Business Development Manager, WL Funding, Inc. at (504) 833-5512 or via email at dale@wlfunding.com.

Article Source: http://EzineArticles.com/?expert=Dale_Busbee

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