Create a Cash Flow Cushion for Your Staffing Business
Balancing the cash flow of a staffing agency can be challenging. On the one hand, you have workers wanting to be paid weekly, biweekly, or monthly. And, on the other hand, you have customers who insist on 30-day credit terms or more.
As a result, there is not much room to maneuver when managing a staffing company’s cash flow. But insufficient working capital will stifle the growth of any business. A healthy cash flow is not only essential to the continuation of a staffing business, a boost to cash flow would also enable a staffing agency to expand. So, how can you create a cash flow cushion to fund the expansion of a staffing business? This article explains eight ways a staffing agency can improve its cash flow position.
1. Vet New Customers
The first step to boosting cash flow is to avoid taking on slow-paying clients. So, credit-check all new customers and follow up trade references. Then, you can take a commercial decision whether to supply workers to a company with a poor payment track record. And, of course, vetting clients will also help to avoid bad debts.
2. Use Payment History When Allocating Workers
Consider payment history when allocating workers to assignments. Suppose you have two clients needing temporary staff, but you don’t have enough available workers for both contracts. In that case, it would be best to supply staff to the customer with the best payment history.
3. Offer Favorable Rates to Prompt Paying Clients
When negotiating daily rates with customers, consider the credit that you offer, too. You might, for example, offer a discount on standard rates for customers who agree to pay within 15 days. Of course, any rate discount deals would need monitoring to ensure compliance with the agreement. Even so, the extra admin would be worth it if it significantly improved cash flow.
4. Encourage Prompt Payment
Offering early payment discounts will speed the payment of some accounts receivable (AR). However, some clients will opt not to take advantage of such discounts. Nevertheless, settlement discounts will probably have a positive effect on cash flow.
Related: 10 Questions to Ask Before Giving Credit to B2B Customers5.
5. Review Pricing
On a more fundamental level, increasing your rates would, of course, improve the cash flow position. However, a price increase would have to be implemented only after thorough research of current market rates. Still, if you haven’t increased rates for some time, this strategy would be worth considering.
6. Chase Overdue Invoices
The collections process doesn’t need to begin only once an account is long overdue. You could, for example, phone customers with significant balances shortly before payment is due to ask for a payment date. It would also be best to chase AR accounts as soon as they become overdue. And keep on top of delinquent accounts until they are paid.
7. Withdraw Staff from Late Paying Customers
If a customer is persistently late paying their invoices, it might be best not to supply them with more workers. Of course, a decision to withdraw staff is tricky and must be weighed up against the long-term value of a client. Even so, a warning a customer that their account will be placed on hold may be sufficient to prompt payment.
Related: How to Collect Overdue Sales Invoices Without Losing Your Customer
8. Consider Financing Options
Ongoing cash flow problems will impact growth plans. And managing a tight cash flow takes up a lot of time and costs money. But another way to ease cash flow and increase available working capital is to consider the various financing options.
Fixed Term Bank Loan
Business bank loans will provide a one-off lump sum of cash. Fixed monthly repayments will repay the loan. However, obtaining bank finance can be challenging for a small or relatively new business. And a bank may require collateral against a loan or a personal guarantee.
Line of Credit
Lines of credit, such as an overdraft facility, provide a more flexible funding option. You only use a line of credit when it is needed, there are no fixed repayments to make, and you only pay interest on what you borrow.
Invoice Factoring
Sales invoice factoring is a flexible alternative to loans and lines of credit. A factoring company will purchase sales invoices at a discounted rate immediately after the invoices are raised.
Factoring has some significant advantages for staffing agencies. Applying for invoice financing is usually a straightforward and fast process. The funding flexes with turnover, and there are no fixed repayments to make. And factoring companies are more concerned about the creditworthiness of the customers than that business. So, small and new businesses can apply for factoring, as can those with less than perfect credit ratings.
Related: Is Invoice Factoring Right for Your Business?
The Bottom Line
Most businesses can delay payments to vendors when a cash flow shortage arises. However, staffing agencies don’t have that flexibility when paying contract workers. So, managing cash flow is even more crucial. And, managing accounts receivable, offering settlement discounts, or obtaining finance, are generally the best ways to create the working capital to fund expansion.
Your Questions Answered Quickly
Whether your business is thriving and you can’t keep up, or you are waiting on clients to pay, Universal Funding can help your growing company. Call us at 800.405.6035 or complete our rate form today to learn more about invoice factoring and how it can improve your company’s cash flow.
About Universal Funding
Universal Funding is a nationwide invoice factoring solutions leader, supporting growth-focused businesses with scalable factoring solutions. With its invoice factoring, payroll funding, and purchase order financing services, Universal Funding provides clients with the working capital needed to grow and support their businesses without taking on new debt. Ranked as one of the nation’s top invoice factoring companies, Universal Funding provides cash flow financing for businesses all across the United States.
