Staffing companies consistently face cash flow problems – it’s the nature of the business. Payables are weekly, but your receivables are six to eight weeks and beyond. Payroll funding is a mainstream financial strategy to bridge cash flow gaps and provide easy access to working capital.
Because inadequate cash flow is a common staffing industry issue, many lenders target this sector as fertile ground for new business. But despite their claims, not all lenders are equal. The best payroll funding companies offer value-added services, expertise, and a commitment to help you grow. Partnering with an industry leader in the staffing company financing space is your company’s best strategic approach to support growth, enhance efficiencies, and help maximize profitability.
Learn how to identify the lenders best suited to be your staffing company’s trusted financial partner. This article discusses the key attributes to look for in a lender with comments provided by Dale Busbee, Senior Vice President of Business Development at eCapital.
When looking for a trusted financial partner, look for what the best payroll funding companies offer.
One of the first questions you should ask when choosing a payroll funding company is their level of staffing industry experience.
While the length of time in business doesn’t always guarantee quality, it usually indicates stability and industry knowledge. You want to work with a reliable, trusted partner with a proven, stable operating history.
- How long they’ve been in business?
- How much experience do they have working with staffing businesses?
- Do they understand your working environment and the services you provide (e.g., multi-state operations, managed service providers, and VMS)?
- Do they have a reputation for solving complex problems?
- Based on their industry experience, can they create flexible funding solutions?
To answer these and other questions, research payroll funding companies and look for positive reviews, case studies, and testimonials from industry peers.
“There are many nuances to consider. Look for a lender that understands your business and how to help work through different scenarios—not just funding—but also measuring performance and more.” Dale Busbee
The ideal funding company should be proactive and continuously develop service enhancements to further streamline funding and improve user experience.
A tech-enabled lender is more likely to be committed to improving digital platforms to offer more money, faster, and with more convenience. Your staffing company will always benefit when you gain more control over how you receive money plus where and when you spend it.
Examples of industry-leading tech-enabled features include:
- Self-directed funding: Allows immediate transfer of funds 24/7 between your funding cash account and your business bank to enhance financial management.
- Online reporting: Access all your account information anytime via an online portal. View accounts receivable, payment histories, funding reports, and even upload supporting documents online instead of emailing or faxing them.
- Credit checks: Conduct credit checks and average days-to-pay information anytime to verify a potential client’s ability to pay.
“Company owners are generally not confined by normal business hours. Accessing funds and account details at odd hours at night, on weekends, or holidays is an advantage for improving business efficiencies” Dale Busbee
Expertise to Share
If you’re not growing, you’re dying. But a business in growth mode is exposed to additional cash flow risks. Having a lender with expertise to share is a definite advantage to maximizing financial stability as you expand operations.
You may want to sell your staffing company, transition to a partnership, or acquire another business at some point. In these situations, a lender with expertise and industry knowledge to share will help to maximize your working capital to your greatest advantage.
“Staffing company financing specialists have the expertise to know the multiples, what your company may be worth, the optimal time for a change, and more. Accessing industry-wide data, these specialists monitor trends in the market and track which industries are up and which are down. These insights are essential to know the ideal time to sell, the right companies to acquire, or even when to expand into a different market.” Dale Busbee
Payroll funding is based on the regular movement of capital. Your lender must be reputable, consistent, dependable, and responsive.
Verify the lender’s reputation by viewing case studies, customer testimonials, and third-party reviews. Visit their social pages or check their ratings online before entering a payroll funding agreement. This way, you can gauge their integrity, trust, reliability, and whether they offer quality service to their previous and current clients.
Some red flags to look out for include the following:
- Slow communication or response times
- Invoice verification and funding delays
- Insufficient lending capacity
- Limited credit options offered
- Unapplied cash or delays in releasing cash reserves
“It’s a cooperative industry of over 25,000 staffing companies, often working together to fulfill service contracts. Word gets out quickly if a payroll funding company fails to meet payroll, charges hidden fees, goes out of business, or files for bankruptcy. Chances are others in your industry will hear about a lender if they are unreliable, inflexible, or otherwise untrustworthy. Conversely, industry lenders with high reputations are very visible and spoken well of. Do your due diligence – reputation is everything” Dale Busbee
A trusted payroll funding company is often identified by its commitment to delivering superior customer service. Look for a lender with a dedicated, responsive, and knowledgeable customer-facing team.
Responsiveness to funding issues is key to retaining clients and employees. Staffing companies have a limited time – they must meet payroll weekly! When conducting due diligence on a potential lender, beware of those who are evasive, unclear, or heavy-handed when responding to your questions. It’s probably an indication of how they will manage your account.
“It’s a very demanding job, but your lender needs to embrace their responsibility. They must be available on the fly and go above and beyond to take care of issues promptly. Saying they’ll get to an issue next week is not an option.” Dale Busbee
You need the autonomy to access and direct your funds without hassles, surprises, or restrictive covenants that could impede your company’s growth and success. A lender that offers flexible terms ensures that you have the freedom to run your business your way, with avenues to improve profitability.
A prime example of flexibility is high advance rates. Payroll funding provides immediate cash advances on invoices. The industry standard is to advance 80% of the invoices face value and hold back the balance owing until the lender receives full invoice payment. The best payroll funding companies recognize the thin margins their customers work with and are more willing to adjust lending terms to fit their customers’ needs.
“Let’s consider a staffing company operating with a 20% margin. If they’re only getting a standard 80% advance, there’s no money left over, especially if there’s a financial challenge during the week. eCapital typically funds with 90% to 95% advance rates providing staffing companies with enough working capital to comfortably cover the essentials – payroll, taxes, insurance, and probably more.” Dale Busbee
Finally, you want to look at the lender’s price for cost and value. Check whether they offer:
- competitive rates
- tiered volume-based discounts
- value-added services, such as self-directed funds and credit checks
- ensure they don’t have any hidden charges over the typical ACH or wire fees.
“eCapital will not lose a deal over price. Our low rates are based on our ability to leverage our customers’ credit positions to maximum effect. As we help their business grow and volumes increase, we provide volume-based discounts to lower their funding cost further. Dale Busbee
Without a solid funding strategy, staffing companies consistently face cash flow problems. But with the right payroll funding partner, you can have more funds on hand to make payroll, retain your talent, and grow your business confidently. The key is to partner with a reputable industry leader known for their experience, ability, and dedication to helping their customers succeed.
Never become complacent with your lender! If your current relationship with a payroll funding company leaves you with concerns or frustrations, you’re with the wrong lender. Don’t feel trapped – act now! Research alternative lenders and lay the groundwork for switching to a recognized leader in payroll funding. Their experience, technological capabilities, and professionalism will ensure a quick and seamless transition to uninterrupted funding.
eCapital is a leading payroll funding company of technological advancements and flexible products designed to help you grow. Since 2006, our organization has been a trusted financial partner for thousands of staffing companies in all stages of development. Providing fast, easy onboarding of new clients, our experienced team ensures an easy transition to industry-leading features:
- Self-directed funding
- Higher advance rates
- Higher credit limits
- Visa commercial cards
- Flexible funding options for more money
For more information about how payroll funding supports staffing agencies through all stages of development, visit eCapital.com