Starting a Staffing Company: How Does Payroll Factoring Work?


In order to choose the payroll factoring company that is best equipped to help your staffing company, you need to know what payroll factoring is and how it works.

Payroll factoring is:

  • A funding method that gives you immediate access to cash flow that grows as you grow
  • A staffing-friendly alternative to conventional financing
  • A simple, straightforward process

Payroll factoring is not:

  • A loan – you do not have to meet a bank’s stringent criteria or create new debt for your company to repay
  • Based on your credit – rather, a payroll factor considers your clients’ creditworthiness to make funding decisions
  • Only a short- or long-term solution – Factoring is generally available for as long as you need, but be sure you understand any contract terms and cancellation provisions your factor offers before signing the final paperwork.

This is all well and good, you say, but how does it work?

The payroll factoring process is simple:

  • Place your staff and have them fulfill their assignments. Prepare your invoices and send them to your clients as you normally would.
  • Send a copy of your invoices to the payroll factor, who will verify time worked and any additional charges (such as hiring-in bonuses) per your contract with the client.You can submit invoices as often as you need for funding, whether it’s biweekly to meet payroll or several times a week as your cash dips low.
  • The payroll factor will advance a set percentage of your invoices’ face value. The advance rate will be set forth in your factoring agreement and will range from 70-90 percent of the amount.
  • Run your business! The cash you receive through factoring is yours to pay whatever expenses your company has. Make payroll, then use funds to improve your marketing, pay your bills, or grow your staffing company.
  • Your clients will pay the factor the amount due on their invoices. When the factor receives payment, they will deduct their fees from the amount not advanced to you and release the remainder.Factors’ rates vary depending on several elements of the transaction. In addition, many factors adhere to an established release schedule, so you can expect payouts one to three times a month. Confirm the schedule with your payroll factor before you begin using their services.
  • Rinse and repeat as often as you need!

There are no hidden fees associated with factoring, and any stipulations on each step of the process should be discussed and agreed upon by both you and the payroll factor before the relationship commences.

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