Survival of the Fittest? Staffing Firms Need Flexible Funding for Stability and Growth

450911075Staffing companies face a complex and demanding business landscape these days, where margins are tight and client expectations are high and getting higher. Firms are matching millions of people to millions of jobs worldwide, but the competitive environment is tilting, and starting to favor larger, consolidated firms heavily over the smaller shops that were once more visible in the industry.

Why is it so difficult to compete? Financial resources are the name of the game, and smaller firms need the same, strong working capital strategies that keep larger firms doing business effectively. If you want longevity and growth as a staffing player, cash flow is required.

This is a tough, cyclical business, with inherent fluctuations in every facet of operations – people, placements, payroll and receivables. The payoff can be worth it though, and the staffing industry is poised for change and growth as clients become more sophisticated in how they view and value access to real talent in their workforce. It takes staying power to capitalize on the opportunity, and in an industry that is all about flexibility, funding options must flex as well. Invoice factoring is one means to manage cash flow successfully, and a new generation of staffing firms is extending its reliance on this financing option to do more than provide cash flow. With money on hand, more staffing firms are expanding and specializing – providing technical training to a corps of skilled workers available for placement, creating a unique image and talent pool that differentiates their firm.

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Smart firms seeking growth and stability will evaluate all their financial options to determine the best fit and most flexible fit. The process can be eye-opening – qualifying for a bank credit line may be difficult in general, as this type of financing requires financial review and is defined to a set level of spending and required payment. Further, if your business does qualify for bank financing, interest fees will increase company debt. For staffing firms, factoring provides a practical alternative to a bank-issued credit line – offering a faster, more flexible resource that can reduce overall costs without incurring debt to the business.

Factoring works in contrast to the standard options for business finance – choices like bank loans or credit cards – which don’t quite fit the ultra flexible staffing business model. These traditional financing tools can require time consuming paperwork, incur debt, and be tough to come by if your business is less than three years old.Factoring differs from bank loans in several well-defined ways. It is not a loan, but rather the purchase of a financial asset (your invoices), by a factor from the seller at a discount. For example, the factor is much more concerned with the credit-worthiness of the debtor; this is in contrast to bank funding, which focuses on the credit-worthiness and total assets of the seller. Staffing firms may see some additional value here, as this focus on the debtor mitigates the risk involved with every new client.

Most important for staffers, invoice-based financing ensures that building a business is no longer dependent on what operating capital you can afford to reserve toward winning new customers, or training new employees for specialized or technical placement. When cash flow is tied directly to invoiced business, funding fuels growth as well as stability – and staffing firms of any size have a fast, flexible resource for smooth operations and ongoing business growth that can make the most of their competitive differentiators.

MORE: How to increase the value of your people

Tracy Groves

Tracy Groves
Tracy Groves is vice president of communications for eCapital. She can be reached at Tracy.Groves (at) ecapital (dot) com.

Tracy Groves

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