When managed correctly, a financial services staffing company can grow very quickly. While this is great news for the company owners, it also leaves your company open to potential cash flow problems. Most growing companies, especially those that don’t have adequate reserves, often bump into cash flow problems during period of fast growth. These problems can often affect your ability to run the business effectively.
For the most part, these problems are simple to understand and solve. Financial service customers – banks, institutions, etc. – usually pay their invoices in 30 to 60 days. Since they are usually large firms, they demand terms as a condition of doing business with them. On the other hand, you need to pay your temp employees on a weekly or biweekly basis. Money flows in slowly, but flows out quickly.
If your company is well capitalized, you can handle this using your cash reserves, which act as a financial buffer. But if you don’t have a reserve, you could run into serious problems. At the very least, you will have a cash flow crunch. At worst, you could be left without enough money to cover payroll.
Solving the problem
One way to solve this problem is to use finance your invoices using factoring. When used correctly, this solution can provide the liquidity your financial services staffing company needs to cover payroll and to take on new customers. It minimizes having to worry about slow paying accounts receivable, and allows you to focus on running – and growing – your business
It works by partnering with a factoring company, who advances funds for your slow paying invoices while using them as collateral. Transactions are settled once your customers pay on their normal schedule. Most financial services staffing companies that use factoring finance a portion of their receivables on an ongoing basis, which improves their cash position. Most transactions are relatively simple – here is an example.
Requirements to qualify
Qualifying for receivables financing is easier than qualifying for other types of business financing. The process is also simpler. The most important requirement is that your customers must have good commercial credit and a solid track record of paying their invoices. This is critical, because their credit is what acts as collateral for the transaction. Additionally, your staffing agency should also meet these requirements:
- You must only invoice for delivered and accepted work
- You must have good billing practices – preferably using time cards
- Owners must have industry experience and a good reputation
- Invoices must be free of liens and legal/tax encumbrances
Tool for growth
Perhaps the biggest value that comes from using accounts receivable financing is that it can be used to grow your business. It can help you take on new customers because it minimizes the worries about slow payments, enabling you to offer terms. Additionally, your line is designed to grow with your company and match increased sales. Because of this, invoice financing companies are a great option for staffing companies that have working capital problems created by slow paying financial services customers.