Small Business Invoice Factoring

When staffing agencies need an immediate infusion of cash into the business, their options are limited. Accessing credit lines or loans requires time and approval is based on very stringent terms that prohibit many business owners from qualifying. But with the introduction of staff factoring, small business owners can now outsource their account receivables and access immediately available funds that do not need to be paid back- because it is not a loan.

Staffing Factoring Overview

Small business invoice factoring is the process of accelerating a company’s Cash Flow by selling invoices that have yet to be paid by clients. The business sells that to the factoring company, who now owns the debt. In exchange for the right to collect on that debt, the factory company releases up to 85% of the face value to the business owner.

How It Works

Once approved, the staffing company submits unpaid invoices to the factoring firm for consideration. The firm then validates and confirms the debt listed. Next, the client who owes the debt is then evaluated for creditworthiness in order to minimize their losses. Once the client is deemed worthy, the firm them takes ownership of the invoice and releases up to 85% of its’ value to the business owner.

The invoicing company assumes the role of collections on the debt. Because this type of invoice factoring is a recourse transaction, the company has the right to return the invoice to the business in the case that the client does not pay within 90 days. Not only does that require the business to pursue collection of the debt, but it also means the factoring company owes a refund on the money that was paid out on the invoice. That debt can be settled by either making a payment, or it can be deducted from future factoring requests.

Determining Whether Staff Factoring Is A Good Fit

Staffing agencies that accumulate between $5,000 and $50,000 of outstanding invoices each month are great candidates for invoice factoring. More specifically, temporary agencies, human resource consulting firms, Information Technology staffing firms, Healthcare Staffing agencies, and even Headhunters are the most common businesses that use this type of funding. In part, because they typically offer 30 to 90 days turn with their invoices, allowing clients an opportunity to pay for the services received.

Qualification Requirements

One of the best things about invoice factoring is that invoice approval is dependent upon the creditworthiness of the client who owes the debt. That means that a small business can be approved regardless of its own credit standing. So, even if the business’s credit score gas taken a hit, it can still factor invoices and gain access to cash immediately.

With that said, getting started is easy as long as the business meets the minimum requirements. First, prospective businesses must have at least one employee staffed in the business along with at least three or more months in the business.

Secondly, because many staffing companies require a minimum amount of business revenue, perspective applicants must Ensure that they can show at least $30,000 a month’s worth of income in the accounting books. Of course, each company says its own criteria, but as long as the business meets the minimum, they will surely find a company to work with.

If accessing funds is needed in order to keep the business operating smoothly, then small business invoice factoring can save prove to be a lifesaver. Not only can the money be available in as little as 24 hours after the assignment, but it does not come with a repayment schedule. All in all, invoice factoring improves the liquidity of the company while allowing the owners and administrators to do what do best, which is to run the company and attract new customers.

What do you think?

Written by Danny Dotson

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