Asset-Based Lending

How to Finance Your Staffing Company

Michael Reznik
February 18, 2019

Alternative financing is a flexible solution for staffing companies

How can funding help my staffing company?

Outstanding invoices are a major inconvenience for many staffing businesses; you have outstanding receivables that are collected 30, 60, 90 days later and cannot be used to pay bills or payroll until you collect and have cash in hand. If your business ever faces cash flow problems like this, then alternative receivable based financing may be a solution.

Staffing companies that are either starting out, looking to grow, or lack working capital to cover their payroll due to slow paying clients can benefit from using receivable based financing to smooth out business operations. Financing from a reputable source can help cover the cash flow gap and provide financing needed to grow your business.

There are many alternative financing products in the industry that range from unsecured loans, factoring to receivable revolving lines of credit, which can be the ideal solution to the working capital problems that your business faces.

What is a receivable revolving line of credit?

A receivable revolving line of credit can be your solution for when you have invoices on hand but lack the cash to operate your business. This receivable line of credit is backed by your invoices as collateral and grows as your business grows. The flexibility of a revolving line of credit along with an affordable rate mean that a line of credit is the preferred solution for many staffing companies. As your business grows, the revolving line of credit can be increased as your staffing operations scale and your receivable balance increases. With additional financing, you can acquire new customers and grow your staffing business.

What is the difference between invoice factoring and receivable revolving line of credit?

Staffing factoring, staffing funding, or payroll factoring are all names for the same product – invoice factoring for a staffing company. In these relationships, you sell individual invoices to a lender at a discount and with a fee rate. Depending on the arrangement, the lender can notify your customer that their invoice has been factored and that all payments should be made to the lender.

In a general invoice factoring agreement, you receive an advanced amount against your invoice ranging from 80-95% and the remaining amount is held until your customer pays. If the customer does not pay within the agreed terms of payment, additional late fees is applied to the total amount of the invoice. Once the customer pays the invoice directly to the lender, you receive the remaining amount less the applied fee.

A receivable line of credit, may be the more flexible solution for your business. A receivable based lender will analyze your outstanding accounts receivable, and based on the receivable aging provided, the lender will approve you for a receivable based line of credit at up to 95% of the total invoice pool. In this relationship, you only pay a pre-determined rate on the amount you draw from the available line. Additionally, you will have access to the full line of credit and will not have to wait on your customers to pay back to know how much you will be charged.

For example, if you get approved for a $10,000 line of credit. You have the choice to withdraw as much or as little as you want. Let’s say you choose to use the full line and pay it back over the course of one month at a 1% monthly interest rate.

In this example, you pay back the $10,000 principal net 30, which has a total fee of only $100.

Additionally, unlike the traditional invoice factoring arrangement where the lender notifies your customers of the arrangement, in a non-notification line of credit your customers will not be notified that you have sold invoices to a lender, nor will you be charged for the unused portion of the line of credit.

What do I need to qualify for a receivable line of credit?

To apply and get approved for a receivable revolving line of credit there are a few key steps to follow:

1. Compile your financial documents

The lender will want to see financial documents for multiple periods that include a profit and loss statement, balance sheet, cash flow statement, bank statements for up to a year, tax returns and an accounts receivable aging report. The lender may also ask for your project profit and loss for the next 6-12 months. Having these financing documents on hand will expedite the approval and funding process.

2. Gather the supporting receivable documentation

The major benefits of receivable based financing is its flexibility and favorable rates. In order to provide these benefits, lenders require your detailed receivable aging and invoices to secure the line of credit. You should make sure your receivable aging is complete and accurate and that all supporting invoice documentation is available for review. It’s important for the lender to review copies of the invoices and customer confirmation.

3. Describe your business and need for working capital

To qualify for receivable line of credit, you will have to paint a picture of your business to the lender. It is critical that you are able to describe the revenue history, current revenue streams, debt size if any, number of employees or contractors, business history, and the reasons for working capital. The better the lender understands the business, the faster the lender will be able to provide funding at more favorable rates.

4. Apply

A typical application process consists of a short online application to start the qualification process. A dedicated account manager will then follow up and request additional information and documentation before ultimately offering you a financing packet with an offer. Once you commit to the offer, a lender will typically perform a more thorough analysis of your financial documents prior to transferring the funds to your account.