Most hospitality staffing companies have a common cash flow problem that is prevalent in most staffing companies. They need to pay employees every week but have hospitality customers that pay their invoices in 30 to 60 days. Most hospitality customers – hotels, caterers and restaurant chains – are known for paying their invoices on terms and there is little that you can do about that.
While this is not a major financial problem for staffing companies that have accrued a large cash reserve , it’s a big problem for growing agencies that don’t have reserves. It can lead to financial problems, affect your ability to make payroll and prevent you from taking on new clients.
Solving the problem and moving forward
One simple way to handle this problem is to finance your slow paying invoices. A staffing factoring plan can do that and provide your hospitality agency with the funds it need to cover it’s expenses. Instead of waiting up to eight weeks to get paid by clients, you get an advance from a factoring financing company. The transaction closes once your client pays in full on their regular schedule. This can enable you to work with clients that demand payment terms, without having to worry about your cash flow.
Most transactions have a simple structure where the finance company funds your receivables in two steps. The first payment, called the advance, covers 90% of the gross value of your invoice. It’s provided as soon as the work is completed and the employee time cards are verified. The remaining 10%, less a funding fee, is rebated once your client pays on their regular schedule. The cost of the transaction varies based on the credit worthiness of your hospitality clients and the size of your invoices. Obviously, you can get better terms if you work with major hotels, restaurant chains and catering companies.
The obvious advantage of financing your receivables is that it will improve you cash flow and enable you to offer terms to your clients. Also, the line can grow with your company. This means the line can increase to match your billings as you place more staff with hotels and restaurants. This can give you a flexible financial platform to grow your business.
Easy to get
Getting conventional financing can be difficult for hospitality staffing agencies. This is because they lack the conventional hard assets like real estate and equipment that banks often demand. Their assets are their employees – and those walk out the door at 5pm every day. However, to qualify for receivables funding you need to meet this simple criteria :
- Invoices and time cards must be for completed work
- Invoices must be clear of encumbrances and liens
- The staffing agency must be clear of liens and tax problems
- Your customers must have solid commercial credit
That fact that it’s flexible and easy to get makes receivables factoring an ideal solution for hospitality staffing agencies that are growing and need funds to meet expenses.