Five Ways to Fund a Staffing Payroll Cycle, Compared
There is no best structure. There is the one that fits your concentration, your invoice size, and your collection cycle. Here are the criteria, then the assessment.
By The Editors, Staffing Agency Capital
The Criteria, First
Seven criteria decide the answer. Here they are, before the assessment.
Speed to first draw. Setup time plus draw time. The number that matters is the second one, because it recurs every Friday.
What it advances against. Invoiced receivables, the contract, or the balance sheet. This decides whether a signed contract is an asset or a liability in the underwriting.
Advance rate. The percentage of the eligible receivable you can draw. 85 to 93% on clean staffing paper.
Concentration tolerance. What happens when one client is 40% of your book. The single most common disqualifier in staffing.
Total cost. The discount rate plus minimums plus termination plus the recourse period. Not the headline number.
Client visibility. Whether your clients learn about the arrangement, and what they do with that.
Reporting burden. Hours per month from your controller. A real cost with no line on any rate sheet.
The Structures
Notification factoring. Wrong when your clients are small, relationship-driven, and unfamiliar with assigned invoices. The mechanism is fine and the conversation is not free.
Non-notification factoring. Wrong when the premium over notification exceeds what the discretion is worth to you. Price the difference before assuming you need it.
Payroll funding facility. Wrong when your cycle is stable and your concentration is low. You are paying for timing precision you do not need.
Asset-based line. Wrong when you have no fixed assets and a thin balance sheet, which describes most staffing agencies. The reporting burden alone can exceed the benefit.
Bank line of credit. Wrong when you are growing faster than the line resets. A line sized to last year's balance sheet is a constraint on this year's agency, and three flat renewals against 60% growth is the formula working as designed.
Match the Structure to Your Configuration
No winner. Six configurations, and the structure each one points to.
$3M agency, 5 clients, largest is 45%. Concentration is the binding constraint. Most structures price it heavily or decline it. Start with providers who underwrite concentration explicitly rather than shopping the rate.
$12M light industrial, 40 clients, none over 12%. Clean book, high advance rate available. The comparison is cost and reporting burden, not availability.
$8M healthcare staffing, 90-day cycle. The cycle is the problem, not the credit. You need a structure priced for 90 days rather than one priced for 52 and surprised by the difference.
$20M agency, new $5M contract signed. Mobilization is the question. A structure that reads the contract funds in days. One that reads the balance sheet takes months, and the client will not wait.
$5M agency, clients are Fortune 500, all on VMS. Your clients see assigned invoices daily. Notification is a non-event and paying the non-notification premium buys nothing.
$15M agency, profitable, bank line at $2M for three years. You have outgrown the structure, not the relationship. The line is sized by a formula that does not track your receivables, and no conversation fixes a formula.
When None of Them Fit
If the placement loses money at the bill rate, every structure on this page funds the loss faster.
Run the markup first. A 22% markup on a $28 bill rate does not cover a fully loaded contractor plus overhead plus 52 days of carry. That is a pricing problem, and financing a pricing problem is how agencies grow into insolvency while every quarter looks fine.