Many entrepreneurs gravitate towards starting staffing agencies because they are thought to be less capital intensive than other industries. The concept is that you only hire the employees you need them, when you need them and only to handle the contracts that you have. Although in principle this sounds enticing, the reality is that staffing agencies do require a substantial investment (or at least business financing) if you plan to grow them. This is because income and expenses are usually mismatched.

What do we mean when we say that staffing agency income and expenses are mismatched? Well, most staffing agency employees need to be paid every week (or every two weeks) through payroll. However, most staffing agency customers pay their invoices on net-30 or net-60 day terms. Said simply, expenses are fairly immediate but your income is delayed by 30 to 60 days. This means that the company needs to cover payroll from its own reserves while waiting to be paid. And if you run out of reserves, your company will be in trouble – or at the least – it wont be able to take on new clients.

There are two ways to approach this problem. One way is to ask customers to pay quickly. However, this is often difficult as large customers usually like to be able to pay their invoices on net 30 to net 60 terms. Another approach is to accelerate your customer payments using a factoring program for staffing agencies. This program uses a financial intermediary that advances you funds based on your open invoices to credit worthy customers. You get paid by the factoring company (financial intermediary) immediately – who then holds your invoices until they get paid by your end customer.

One of the advantages of factoring is that it is easier to obtain than other forms of business financing. The most important requirement to qualify is that your customers have good commercial credit. This is important because factoring companies consider your invoices to be your most important asset. Aside from this, your company needs to be free of legal and tax problems.

Working with a factoring companies can be an ideal solution for a small or medium sized staffing agency whose biggest problem is that it can’t afford to wait up to 60 days to get paid by customers.