It is human nature that at some point in our lives we need a helping hand. The majority of the time we get to be assisted.
It is, therefore, only natural that in business there would be a need to hire a few additional staff to complete a project. These businesses would then need to collaborate with staffing companies and employment firms to acquire the additional manpower.
These two parties conduct business on a credit basis. The staffing companies require money to pay the employees since they are paid after every two weeks. With this in mind working on a credit basis may not be very suitable for them hence they would need to find another way to get the money.
At such a time it would be wise to consider staffing factoring. This involves the sale of invoices to a third party known as a factor. The factor would then provide the staffing company with the majority of the invoice value.
Once the customer pays for the invoice, the factor will then give the client the remaining amount after deducting the discount and the charging fees.
If a staffing company wishes to apply a factor, what procedure would they have to follow?
- The staffing company would have to sell goods to the buyers and provide an invoice for the transaction.
- After that, the staffing company would have to provide a copy of the invoice to the factor who would then verify it and check on the credit profile of the customer.
- Once the invoice has undergone verification, the factor provides the staffing company with nearly 80% of the money.
- From there the factoring company would have to wait upon the customers to pay for the invoice.
- On receiving this money, the staffing company will be given the remaining amount by the factor.
- Some factors may prefer to have an upfront payment but some may charge the staffing company on the remainder of the money.
- The rate of commission is dependent on the type of factoring service that the staffing company will want.
- However, it is crucial to note that the commission rates are negotiable depending on the financial position of the staffing company.
What are the benefits of staffing factoring to a staffing company?
Factoring helps to improve working capital management. With good management, the company would be able to offer favorable terms to its clients and also take up more orders leading to its growth.
There is a reduction in the number of debts in the company. The factor first provides working capital hence the company will not have a deficit due to debts. It also ensures that the customers promptly pay their debts and none of them default payment.
The staffing company will be able to acquire their profits immediately. This occurs when the goods and services offered are turned into monetary value that benefits the company.
This money is provided by the factoring company.
Having a factor saves time and energy. Collection of debts can be not only tedious but also quite time-consuming since one would be required to keep constant communication with the clients. Factoring reduces the hassle by taking that role and leaving more time for the staffing companies to grow and become successful.
The above are just some of the reasons why one should consider applying factoring in their business. It is a choice that would leave both the buyer and seller satisfied.