Is accounts receivable financing the right choice for your staffing company? Where does the owner of a fast-growing staffing service agency turn in order to get the financial flexibility they need?
They may have already discovered that banks are often not as flexible with the changing needs of staffing companies. And they may be quite familiar with what a typical bank loan entails, including line limitations, severe penalties for default, annual renewals and re-approvals, restrictive covenants — and sometimes even personal collateral such as the business owner’s home or other properties.
Faced with these restrictions and downsides, many owners are turning to factoring, also known as accounts receivable funding. Through this financial tool, your invoices are purchased for a discount and your business is provided with immediate cash. The amount of value for each account depends on its age. An invoice that is current holds more value than one that has aged one or two months. Those that are in arears by more than three months, typically are not financed because of the risk that payment may never be made.
If your invoice has value, however, advances can be arranged on a sliding scale, up to 90 percent. This helps businesses to determine cash flow needs from week to week. Lower rates are provided as a reward for high-volume growth.
Accounts receivable financing does not typically have line of credit limitations or financial covenants. They usually don’t require annual renewals or additional collateral.
Along with these advances, firms also can elect to outsource back office and administrative tasks such as payroll and related chores, billing and collection functions.