Staffing Factoring Explained



Staffing factoring also goes by the name of payroll factoring and is something that is used by different types of staffing agencies. Payroll factoring is a financial tool that assists these staffing agencies to convert all of their unpaid invoices into working capital immediately. The staffing agency can get an advance on 85 to 95 percent of their invoices from the payroll factoring company. Once the invoices are paid the staffing agency takes out its fees and gives the remaining balance to the staffing agency. Payroll factoring is not the same thing as a loan or a line of credit. The staffing agency does not make any payments to the factoring company. The way the payroll factoring process goes is that the staffing agency sells its accounts receivables to the factoring company for a cheaper price than the actual invoice. The customer will then make the payment to the factoring company instead of the staffing agency. 

Once the staffing agency sells their unpaid invoices to a factoring company it becomes the factoring companies responsibility to collect the unpaid invoices. Staffing factoring is highly favored by many staffing agencies because they are able to pass off the responsibilities of collecting on client invoices. Payroll factoring gives staffing agencies the ability to outsource their accounts receivable department.

What Types Of Companies Use Payroll Factoring

When it comes to staffing agencies and their ability to collect on their invoices this can sometimes be challenging. The challenge is that due to the nature of the staffing industry invoices are paid unpredictably. This can cause a staffing agency to have difficulty managing their invoices. If a staffing agency has between 5,000 and 50,000 dollars worth of invoices that is outstanding the agency will most likely turn to the services of a payroll factoring company.  The most common companies that utilize payroll factoring companies the most are headhunters, general staffing agencies, human resources consulting firms, information technology staffing agencies, healthcare staffing firms, and temporary agencies. 

The Steps Of Payroll Factoring 

Payroll factoring is very similar to traditional invoice factoring in that they both give staffing agencies money upfront for their unpaid invoices. The difference between payroll factoring and traditional loans is that you do not have to make any scheduled payments to the factoring company. There are five steps in the payroll factoring process. The first and initial step in the factoring process is to invoice the customer. The second step in the process would be to assign the invoice or invoices to a payroll factoring company. The third step in this process is that the staffing agency and payroll factoring company agree on the holdback percentage. Then the staffing agency is paid for their outstanding invoices by the payroll factoring company. The next step of this process is the customer then pays the invoice directly to the payroll factoring company. The final step in the process is once the factoring company receives payment for the invoice they take out their fees and forward the remainder of the holdback to the staffing agency.

Payroll factoring is a great and reliable tool that helps many different types of staffing agencies to stay afloat by providing them with the capital needed to make payroll and to continue to grow their business. Payroll factoring has become a common tool for many different types of staffing agencies across many different industries. If payroll factoring did not exist there would be many staffing agencies that would be strapped for cash and possibly even going out of business. 

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Written by Paul Watson

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