Authored by Phil Cohen
If you’re looking to start your own staffing company, you’re going to have to invest some capital initially to get things going. Regardless, every business owner has the same thought when beginning a new company: how much time will pass before I start earning money?
Staffing companies can get paid faster than many other businesses by taking advantage of payroll factoring.
How soon will I get cash with payroll factoring?
The short answer: typically, within 24 hours!
The longer, better answer should be considered in two parts: the initial due diligence timetable, and the general funding timetable.
Due Diligence
While each factor’s specific due diligence process is unique, they all follow the same general framework (steps may vary in order):
- You submit a factoring application for your company.
- The factor sends you a proposal or contract with rates and terms.
- You accept the proposal and send in required paperwork, typically:
- Tax information
- Customer lists
- Current accounts receivable and accounts payable aging reports
- Other documents as requested by the factor
- Banking information for deposits
- The factor completes their due diligence, including personal background and credit on the company and your debtors and a review of the information you have submitted, and approves you for funding.
- You complete any closing documents to finalize the relationship and return them to the factor; they set up your account.
This process may seem daunting and lengthy, but if you are organized and maintain open communications with your factor then you may be able to get through this process in as little as 3-5 business days. Anticipating any issues and addressing them ahead of time can help avoid any delays.
General Funding
Once you have been approved for factoring, your initial funding and subsequent funding requests will follow the same pattern – again, generally the same for most factoring companies but with possible factor-specific changes:
- You submit invoices for funding with any required backup documentation (service agreements or timesheets).
- The factor verifies your invoices using the backup paperwork and contact with your client. This is usually a one-time or periodic verification that your employees are working for the company, not an every-funding step.
- Once invoices are verified, the factor will initiate a funds transfer to your account, either by wire or ACH.
- Wire transfers are nearly-instant money transfers between the factor’s bank and your own. Funds are immediately available for your use.
- Automated Clearinghouse (ACH) transfers are next-day transfers; money is available in your bank account on the next business day.
You will typically receive funds within 24 hours of submitting invoices.
Wire or ACH?
As explained above, there are different transfer speeds that the factor can use to issue your cash. Your factor may offer the option to choose between the two transfer methods, or they may indicate one or the other as their default transfer method. Make sure you fully understand their transfer policies before you begin factoring.
If you have a choice, consider your funding needs based on the main advantage and disadvantage of each type of transfer:
Wires are immediate, ideal for same-day cash, but are more expensive – the factor charges more to initiate one, and your bank may charge an incoming wire fee.
ACH transfers are next day, requiring you to plan ahead for funding, but are less expensive – ideal for controlling your costs.
Of course, if your factor allows you to choose the transfer type for each transaction, you may default to one method and reserve the other for when circumstances dictate.
Please remember that all of this information is contingent on your specific factor’s policies, so ask questions and read every part of your factoring agreement so you understand the timetables particular to your factor.
Factor Finders provides payroll factoring services with full back office support to temporary staffing agencies in a variety of industries. Learn more about our factoring programs for staffing companies by giving us a call!
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