Employment agencies and other institutions that provide companies with workers often have a difficult time with cash flow. They only get paid if and when their clients get the workers they need, and that can sometimes take weeks. As a result, employment agencies sometimes have to pay bills on a very rigid time scale from their own pocket. Invoice factoring can help solve this problem.
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Agencies that are just starting out are particularly vulnerable to cash flow problems. Not only do they have a smaller clientele and little to no surplus money, but they also have extra costs such as the need for rigorous advertising to spread their name. Additionally, they may not meet the requirements for a small business loan, so they can’t go to a bank.
Invoice factoring is the selling of client’s invoices to a third party, usually a specialized company, for a lesser but immediate pay-out. It is an indispensable method of bad credit financing for small businesses to get money when bills are due. In exchange for the invoices for sale and the employee’s time sheet, businesses who use this method can get up to 90% of the invoice’s value, in as quickly as 24 hours. The client will not have to pay any more money, and the agency can continue their business with the client.
Related Article: How to Use Your Invoices to Finance Your Growing Business
Working with a Company
When an employment agency finds a company that specializes in invoice factoring and whose criteria fit the agency’s desires, they must first establish a relationship. Essentially, because the factoring company will be taking the client’s payment which will only be due if they succeed in getting work, the factor will need to assess the agency’s ability to find work. Because of this, payment for first time users of the factoring services can take about four days, on average. The time elapsed will shrink to 24 hours once the agency gains the company’s trust.
With invoice factoring, employment agencies no longer have to be anxious about qualifying for financing. They simply need to go to a Factor and provide the invoices they wish to sell, along with their employees’ time sheets.