Factoring can be a great way to help your temporary staffing firm pursue new avenues of growth. The key is to know which option works best for your needs. Full-service factoring partners handle all your administrative and financial services, allowing you to meet new clients and expand your brand. Money-only factors provide flexible financial support.
To understand which temp factoring option is right for you, consider these three guidelines:
1. Understand your needs
You have to be honest with yourself about whether you can handle your temporary agency payroll and the other expenses that come with running your business. If every month is a struggle to cover expenses, then you could realize a great benefit from money-only factoring.
If you can’t obtain a standard bank line of credit, which many companies are unable to do because they haven’t been around long enough, don’t have a good track record or their credit isn’t good, that can lead them to money-only factoring.
You’ll pay a fee for the service. But, if a standard bank line is not an option, the cost of factoring is reasonable and provides a clear path to grow your business. In return, you’ll typically get a factoring partner allowing you unlimited growth as long you have creditworthy customers.
2. Give yourself time
If you’ve got a good team of people who can handle the administrative duties that come with running a business, money-only factoring may be all you need. However, if these tasks are more of a challenge for your business, you may want to consider full-service factoring.
If you’re using full-service factoring, the factoring company will do all the back office work. They handle payroll, billing, taxes, credit collections and funding, freeing up your time to focus on more important tasks, such as sales. It’s only slightly more expensive than doing it yourself.
There is obviously a cost involved with factoring. But if you can afford it, the factor will free up time for you and your leadership team to pursue the growth of your business and its core business goals. This is well worth the cost.
3. Check the details
In addition to handling financial tasks, factors can keep tabs on the credit ratings of your existing and prospective new customers. The key is to be clear about your expectations and study the factor you’re considering before formalizing any agreement.
Some are very strict in how they determine credit limits, while others are more aggressive and will allow you more freedom to bill the customer. Look at how the factor looks at credit for various customers.
You also need to understand how the factor will work with you going forward, especially if you choose the full-service option.
A lot of factors will charge for expenses such as wire fees, D&B reports, UCC filings, postage and other similar items. What looks like a low fee on the surface may rapidly increase after incorporating all the nickel-and-dime expenses.