Commercial FinanceCommercial Finance Blog

Make Payroll: Financial Solutions for Staffing Agencies

The key component to running a successful staffing company is managing financial performance — making a profit and having sufficient cash flow. Professionals need to have confidence that they will be paid with a timely paycheck, and an agency’s ability to attract and retain top talent relies on maintaining positive working capital. But balancing operational costs, staying cash flow positive and having the resources to continue to build your business is not always easy.

Financial Solutions for Staffing Agencies

Meet Michael. He owns a staffing agency providing contingent workforce solutions to warehouse facilities in the Los Angeles area. Like many business owners, Michael ensures a timely paycheck by paying his staff weekly, but he invoices his clients on the last day of the month. To be competitive, Michael offers a 30-day payment term to his clients, but this strategy negatively impacts his ability to meet payday requirements.

Here’s a breakdown of his monthly costs:

Payroll Employee Tax Withholdings and
Worker’s Comp
Shortfall Invoice to Client
>>Net 30 Days
$800,000 $175,000 $975,000 1,120,000

Michael is operating with a monthly shortfall of close to one million dollars, an unsustainable model that leaves his business without working capital to train, recruit and take on more contracts. His company growth is halted.

So, how do staffing companies make payroll and continue to thrive? The solution is payroll funding, a form of invoice financing tailored for the staffing industry.

Here’s Michael’s example with a payroll funding solution in place:

Payroll Employee Tax Withholdings and Worker’s Comp Factored Invoices
(Advance Rate of 90%)
Working Capital Invoice to Client>>Net 30 Days
$800,000 $175,000 $1,008,000 $33,000 1,120,000

That’s a healthy improvement! By factoring his client invoices, Michael has positive cash flow to support and grow his staffing business as he confidently meets payday requirements.

Here’s a closer look at three staffing verticals – how they play a vital role in the economy, the pressures they face day-to-day in their operations, and how payroll funding alleviates their financial challenges to allow them to focus on day-to-day operations.

Health Care Staffing

The health care sector in the US consists of an array of clinicians, hospitals and other health care facilities, all operating in various departments, groups, networks, and independent practices. Health care staffing agencies are a critical element of the health care economy. For busy hospitals paying one invoice to a staffing agency is easier than managing the administration to pay employees individually. This also allows institutions to staff up and down as demand requires – without having to onboard people or lay people off. Staffing agencies with a huge workforce, including not only hospitals but visiting nurse services, clinics, schools, and urgent care centers – face challenges when their invoices are not paid on time. For their nurses and other professionals to get paid on time top medical staffing firms utlilize payroll funding to ensure they make payroll and have the working capital to quickly ramp up to support new business opportunities.

Light Industrial

Manufacturers need a flexible contingent workforce to support demand. With companies ranging from retail, to grocery, wine and spirits, the recent boom in online spending has warehouses and distribution centers looking to increase capacity – quickly. Businesses’ seasonal ups and downs can also lead warehouses to use temporary staffing to meet a holiday rush or a new product launch. Adding staff, increasing operations, and implementing the latest in technology trends comes at a cost. Typically, companies have limited resources available from traditional banks.   With an invoice factoring solution, warehouses and distribution centers have ready access to working capital to support the fluctuations in supply and demand.

Professional Services

Staffing agencies play a vital role in providing businesses with a variety of professionals to meet their needs.  Whether it’s one day of support or a long-term contract assignment, staffing firms need to pay employees weeks before invoices are paid by their customers. To bridge the payroll gap, payroll funding ensures professional service placement agencies have positive cash flow to continue operations – to pay staff, bid for new contracts and enhance service offerings.

Payroll funding is the solution to keep staffing firms running until invoices are paid.

eCapital Commercial Finance has strong ties to the staffing industry. We know staffing agencies – their financial needs and the many barriers that must be overcome to be successful. Our industry-experienced staff offer more than flexible funding solutions to keep cash flowing, we also provide back office support and help in whatever manner we can provide.

For more information about payroll funding as a flexible financing solution for your staffing business, visit eCapital.com.