Why Staffing Companies Consistently Face Cash Flow Problems

It is not difficult to see why staffing companies consistently face cash flow problems. It is an uphill battle when it comes to liquidity. In an industry where your payables are weekly, but your receivables are six to eight weeks and beyond, cash flow can be a significant issue.

Staffing Is Expensive

Let’s face it. This industry is not exactly cash-flow friendly. Operating a staffing agency is expensive, especially if your goal is to attract the best of the best talent for your clients.

There are a few main reasons staffing companies consistently face cash flow problems.

The price of good talent. With the average cost of compensation in private industry at nearly $35 per hour, the price of finding exceptional talent is a major expense. Quality is certainly not an area where you want to cut any corners. To be a player in a highly competitive market, you need to attract the heavy hitters to make it happen.

Marketing costs. In addition to attracting the best talent, you must also get noticed by the best clients. You can’t if customers don’t hear of you. The best talent in the world can’t sustain your business without client acquisition.

These marketing costs factor into agency cash flow challenges, but this also isn’t an area with a whole lot of wiggle room for quickly increasing cash flow.

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Outstanding Invoices

Having your money held up in outstanding invoices is the cash flow dam. That dam can cause some major headaches when you need to process payroll, and your ad agency demands payment, stat.

Staffing Cash Flow Solutions

Unfortunately, there aren’t many solutions to these cash flow problems. Sure, you can go to a 30-day term for payments, rather than the standard 45 to 90 days and raise your rates. But, doing so only narrows the gap, rather than closing it. And your clients may not favor this option.

Holding your payables until the very last minute is also an option, but this carries some risk with it as well. The last thing you want to do is fall into a late payment scenario, which damages your reputation among venders, or worse, your credit.

After weighing many of the options available, some staffing agencies use invoice factoring as a quick way to get cash flowing.

What is invoice factoring? The good news is invoice factoring is a sale, not a loan. With invoice factoring, you service your clients and then use the factoring company for invoicing for the work. Your company receives an advance for a percentage of the payment. Then the factoring company waits for the client to pay. After the client pays, the factoring company pays you the remaining amount due, less the fees for services.

Since it isn’t financing, you don’t have to worry about any impact on your credit. For businesses with limited credit, or who already have a few dings on their credit report — likely due to slow pay from cash flow issues — this is especially good news.

It’s important not to confuse invoice factoring with accounts receivable financing, as there are a few notable differences. Primarily, accounts receivable financing looks at your company’s creditworthiness. Invoice factoring gives more consideration to the creditworthiness of your clients.

Get the Cash Flowing

Whether you choose to increase your prices, use a shorter invoicing cycle, check out invoice factoring, or seek out other solutions, cash flow issues are just part of being in the staffing industry. Fortunately, with innovative approaches, opportunities for liquidity are within reach for even larger segments of the market.


Grey Idol

Grey Idol
Grey Idol manages content and digital marketing initiatives for altLINE, a division of The Southern Bank Co. that offers specialty commercial lending products to businesses nationwide.

Grey Idol

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