Invoice Factoring for Employment Agencies

Invoice Factoring for Employment Agencies

Invoice factoring can be a useful financing option for employment agencies, as they often face cash flow challenges due to the timing of payments from clients and new contracts calling for additional personnel.

Employment agencies typically invoice their clients for the services provided, but it can take anywhere from 30 to 90 days for those invoices to be paid. In the meantime, the agency still needs to pay its employees, cover overhead costs, and invest in marketing and growth and even pay yourself.

By using invoice factoring, an employment agency can sell its outstanding invoices to a factor in exchange for immediate cash. The factor will typically advance the agency a percentage of the invoice value, usually between 80% and 90%. The remaining money will be put in to your reserve account, where it will stay until we are paid the full amount from your clients, when the invoices are due. Once the clients pay the invoices, the factor will release the remaining balance to the agency, minus their fees. 

Using invoice factoring can help employment agencies improve their cash flow and access the funds they need to cover their expenses and invest in growth. It can also help them avoid the need to take out loans or lines of credit, which can come with higher fees and interest rates.  Invoice factoring is not a loan, you are not taking on any new debt.  You are selling your invoices at a discounted rate for immediate cash.  The factoring company pays you and your clients pay the factoring company directly.

However, it is important for employment agencies to carefully consider the costs and drawbacks of invoice factoring before making a decision. Factoring fees can range from 2% - 3.5% of the invoice value per month, depending on the creditworthiness of the agency's clients and other factors. The factoring companies do need to contact your customers.  They need to be notified that that all payments are assigned and payable to the factoring company going forward. The factoring company must also verify the invoices with your customers for validity.  Before the factoring company can purchase your invoices, all the services need to be 100% rendered. 

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