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Factoring For Staffing Agencies: The Essential Guide

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Staffing agencies provide temporary and temp-to-hire staff for businesses to fulfill a specific job. Most staffing firms pay their employees weekly or biweekly, but most clients pay their invoices on 30, 45, or 60-day intervals.

The gap between making payroll and receiving payment puts many staffing businesses in a cash flow bind. Staffing factoring, which is selling unpaid invoices or an immediate influx of cash, is one method staffing firms use to make payroll.

If you’re considering receivables factoring for your staffing agency, we can help you with answers to these questions:

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    What is Factoring for Staffing Agencies?

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    Staffing factoring, also known as payroll factoring, is a specific form of invoice factoring tailored to staffing and temporary employment agencies. Staffing companies are often caught in the dilemma of not getting paid for several weeks but having to make payroll every week or every other week.

    Factoring aims to solve that dilemma by providing staffing companies with immediate working capital. The staffing company factors or sells its invoices at a discount and receives a cash advance for the partial invoice value.

    How does Staffing Factoring work?

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    Payroll factoring requires working with a third-party financial institution called a staffing factoring company or factor. The factor purchases invoices at a discounted rate and then issues a cash advance for a percentage of the invoice value.

    The invoice factoring company owns the invoice and collects payment from the staffing agency’s client. Once the client pays the invoice, the factor releases the remaining amount to the staffing agency.

    The discount rate, also known as a factoring rate, ranges between 1%-5%, and the advance rate is usually between 75% and 95%. Some factoring companies do weekly factoring rates lower than 1%, and a few offer 100% advance rates.

    Factoring Process & Example

    Once a staffing firm has a factoring agreement, the process goes as follows:

    1. Supply staff to your clients and issue the invoice for hours worked.
    2. Send the invoice & staff timecards to the factoring company.
    3. The factoring company approves the invoice and purchases it at a discounted rate.
    4. The factoring company then sends cash based on the advance rate.
    5. The staffing agency uses the advance to cover payroll.
    6. The factoring company waits for your client to pay them.
    7. After receiving payment, the factor releases the remaining amount.

    Let’s look at the process with a simplified example.

    ABC Staffing Agency supplies administrative and IT staff to large companies. Companies pay their invoices at 30-day intervals, but payroll is due every two weeks. The staffing agency enters into a factoring agreement with the following terms:

    • Advance Rate: 95%
    • Discount Rate: 2%

    ABC sends invoices totaling $150,000. The factoring company applies the 2% discount and purchases the invoices for $147,000.

    Instead of sending the total purchase amount, the factoring company applies the 95% advance rate and wires a cash advance for $139,650. ABC receives the wire transfer within 24-48 hours.

    The staffing agency then uses the money to cover payroll. The factoring company puts the remaining $7,350 into a reserve account and waits for the client to pay their invoice.

    Once the client pays, the factor releases the remaining amount minus any additional fees. The process repeats monthly, ensuring ABC has enough working capital to cover the biweekly payroll.

    What to look for in Staffing Factoring Companies?

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    Finding the best staffing factoring company for your business takes a bit of research. Every factoring company differs in its payroll funding fees, requirements, and additional services.

    Factoring Fees

    Factoring fees include the factor or discount rate and additional fees such as an origination or early termination fee. Some factoring companies charge fees such as a transfer fee, invoice upload fee, lockbox fee, and others.

    Factoring companies determine the factor by how long it takes for clients to pay. So, if your staffing agency invoices clients on net-30 terms, you’ll get a lower factor rate than 45, 60, or 90-day invoices.


    Some factoring companies cater to specific industries. For example, many factors specialize in transportation factoring, as the trucking industry uses factoring more than any other industry.

    The best staffing factoring companies offer factoring services specific to the staffing industry. For example, some provide complete payroll services as a one-stop shop for your payroll needs.

    Recourse vs. Non-Recourse

    Recourse factoring means the company has recourse if a client doesn’t pay. The invoice seller must repurchase bad debt invoices.

    Non-recourse factoring provides protection if a client doesn’t pay for a specified reason. For example, most non-recourse factoring agreements include bankruptcy protection.

    Non-recourse is more expensive since the factoring company takes more risk. It’s generally not needed in staffing factoring, as the invoices submitted are for work already performed. Many factoring companies prefer staffing firms for this reason.

    Notification Factoring

    Some factoring companies notify your clients when they purchase invoices; others don’t. The notification makes it easier for the factoring company to collect payment, but some staffing firms don’t want to notify their clients. This is an important consideration when shopping for factoring companies.

    Whole Ledger, Partial, or Spot Factoring

    One thing to consider is how much of your accounts receivable you want to factor. Some companies require whole ledger factoring, meaning you must factor all your invoices.

    Other factoring companies only require you to factor a set percentage of invoices. Some companies offer spot factoring, where you can upload single invoices as you process them.

    Minimum Volume Requirements

    Many factoring companies have minimum monthly volume requirements (measured in dollars). If a business fails to meet the minimum monthly volume, it faces increased fees or even termination of the factoring agreement.

    How to apply for Staffing Company Factoring:

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    Follow these instructions to apply for payroll factoring through United Capital Source.

    Step 1: Make sure your customer is reliable

    Factoring invoices only works when your customers pay their invoices on time and in full. Ensure your customers will pay.

    Step 2: Gather your documentation

    When you apply, the factoring company needs to review the following documents:

    • Driver’s license.
    • Voided business check.
    • Banks statements from the previous three months.
    • Business tax return.
    • Accounts receivable aging report, Accounts payable report, debt schedule.

    Step 3: Apply

    You can complete our one-page application or give us a call to apply. Either way, you’ll need to provide the information above and the invoice amount you want to sell.

    Step 4: Speak to a representative

    Once you apply, one of our representatives will reach out to discuss your staffing business and the costs and terms of factoring. You’ll get an upfront breakdown of all costs, so you don’t have to worry about hidden fees.

    Step 5: Receive approval

    The entire process takes about two weeks to finalize. Funds will appear in your bank account 1-2 days after completing the application process.

    Frequently Asked Questions

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    Here are the most common questions about invoice factoring for staffing companies.

    Why do Staffing Agencies use Factoring?

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    Invoice factoring services offer several advantages to staffing companies.

    Early Access to Working Capital

    The unpaid invoices in a staffing agency’s accounts receivable are an asset. Factoring those invoices converts that asset into working capital sooner than waiting for the client to pay. That early access helps stabilize cash flow and is a lifeline to staffing firms struggling to make payroll.

    Making Payroll on Time

    The primary advantage is ensuring the staffing agency can make payroll on time. Whether the agency pays biweekly or weekly payroll, the money owed to staff is due before the money comes in from the client. Staffing factoring closes that gap and enables the staffing firm to pay its employees. It also allows companies to take on more clients and provide more staff.

    Can I get Staffing Factoring with bad credit?

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    It is possible to get approved for factoring if you have bad credit. Since the payment comes from your clients, staffing factoring companies look more at your clients’ credit scores than yours.

    Most factoring companies have low credit score requirements, while others don’t have any requirements. The key is ensuring your clients are reliable, which is generally the case in staffing. In the case that you can’t get a factoring approval, there are other bad credit business loans available for you to choose from.

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    Staffing agencies often experience cash flow interruptions due to late-paying clients. Factoring helps fill cash flow gaps for smooth operations.

    However, the cost won’t be worth it if your staffing agency can meet payroll without factoring. The question comes down to whether liquidating your invoices to cover payroll justifies the money you lose on the discount rate and factoring fees.

    What are the advantages of Factoring?

    Staffing factoring turns unpaid invoices into working capital to help your agency meet payroll. It’s not a loan, and you don’t incur any debt.

    Since factoring companies determine approval on your customers’ credit and not yours, it’s much easier to get approval for factoring than a traditional bank loan. Many younger businesses or those with bad credit use factoring as a financing solution.

    The factoring company acts as your accounts receivable collections department. For some staffing businesses, the factoring company saves time and money spent chasing down payments.

    What are the disadvantages of Factoring?

    The most significant drawback to staffing factoring is the cost. Most near-term financing solutions carry higher fees than long-term loans.

    Factoring companies decide fees based on how long customers take to pay their invoices. For example, 60-day invoices get lower rates than 120-day invoices.

    Pros & Cons:

    pros, and, cons


    • Turn unpaid invoices into cash.
    • Easier to qualify for than traditional small business loans.
    • You can use the funds to cover payroll for temporary staff.
    • Invoices and receivables are treated as collateral.


    • Higher rates & fees than traditional loans.
    • Fees are based on how long customers take to pay their invoices.

    Staffing Factoring – Final Thoughts

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    Payroll factoring is a viable business solution for staffing agencies that struggle to make payroll. Early access to working capital helps ensure healthy cash flow and smooth business operations. It also allows staffing firms to take on more clients and scale their businesses.

    Contact us to discuss your staffing factoring options. Our loan experts will go over the costs and answer any additional questions.

    We will help you grow your small business.

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