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7 Ways Staffing Firms Can Increase Cash Flow

July 14, 2022
Phil Cohen

This is the eighth installment in our Starting a Staffing Company series. Bookmark us and follow #startingastaffingcompany on Twitter for more information about starting your own temporary staffing agency. 

No matter how successful your staffing company becomes, you will still likely see a gap between your sales and your cash flow. There are a number of reasons for constricted cash flow, including slow payment, outsized overhead costs, and unsustainable prices.

Fortunately, there just as many solutions to bring more cash in to your company. Below are seven things you can do today to improve your cash flow.

  1. Encourage prompt payment of your invoices by providing invoice discounts and other financial incentives to encourage early payment and discourage late payment. Clients will be more willing to pay your invoices quickly if it benefits their cash flow to do so.
  2. Take advantage of quick-pay incentives offered by your creditors. If you can save even two percent off of an invoice then that is more cash you have on hand for other expenses.
  3. Chase the money. Your payment terms – deadlines, late fees, and interest, should be clearly spelled out in client contracts. If you still have clients that consistently pay at or beyond your invoice due dates, though, don’t be afraid to follow up with them. Make a phone call and remind the client about the past due balance. Set up a payment plan or establish a deadline by which you expect to receive payment, and follow up again until the invoice is paid.
  4. Direct more business to your “better” clients. If you have a client who consistently pays late or short, and whom you constantly have to chase for payment at all, evaluate whether it’s worth your time and money to continue placing staff with them. Instead, pursue better contracts and more placements with clients that have a proven track record of timely payment.Also: even if your clients pay you on time now, they may be falling behind with their other creditors. Consider the benefits of a monitoring service such as Cortera, which gathers information from creditors and reports on your clients’ payment trends – including whether their standards are improving or falling. Submit your own customer list and aging to improve the accuracy of their reporting.
  5. Review your pricing model. Are you charging enough for your services? You should compete on value-added services rather than undercutting your competition’s price tag, of course, but if you haven’t raised your prices in quite some time then a modest increase may be necessary just to keep up with rising costs in the industry. Give your clients sufficient notice to prepare for the price change, and don’t worry – the vast majority of them will not suffer any sticker shock.
  6. Grow. If you have clients who pay well and you charge enough for your services, it could be time to expand your company. Smart growth gives you access to more clients and may not mean an overwhelming increase in operating costs if you are able to handle the increased client load with minimal office increases.
  7. Pursue financing with a bank or alternative funding source if there is just no room for your cash flow to grow. There are several financing methods that can work based on your situation:
    • Small business loans allow you to borrow a set amount of capital. You will receive the money at the end of the financing process, which may take a month or more to complete. Many banks have tightened their criteria for lending to small businesses, so this may not be a viable option if your cash needs are more immediate.
    • Lines of credit are similar to a loan, but work best when you have them in place before you need them. With a line of credit, you can take what you need when you need it and you only pay interest on what you have actually borrowed.
    • Factoring is an alternative finance method that, unlike the options above, does not create a liability on your balance sheet. A factor will purchase your accounts receivable and advance you a percentage of their face value; then, when they collect payment from your client, they will take their fees and release the remaining money to you. 

Factor Finders provides funding support to temporary staffing agencies in a variety of industries. Learn more about our factoring programs for staffing companies.

About the Author

Phil is the owner of PRN Funding and sister company Factor Finders. He has been an authority in the factoring industry for over 20 years, serving on the board of directors for several factoring associations.

Learn more about Phil Cohen