While most hospitality staffing agencies can be very profitable, they often operate on very tight cash flows — especially small and growing companies whose expenses can sometimes exceed their revenues. This cash flow problem can jeopardize a company’s ability to grow or even stay in business.
Net-30 payment terms
Most cash flow problems originate with how hotel, restaurant, and catering customers pay invoices. They often request payment terms in order pay invoices in 30 to 60 days. Small hospitality staffing agencies have little choice but to comply with the request. Otherwise, the customers can always take their business elsewhere.
Unfortunately, many small staffing agencies don’t have the financial reserves to allow them to wait that long for payment. They need money sooner because they have recurring expenses, namely payroll. Meeting payroll to keep your business running can be difficult if your customers are paying in 30 to 60 days.
One solution: ask for faster payments
One simple way to solve this problem is to ask customers to pay sooner. Many hotels and restaurants may consider paying invoices sooner if you offer a discount in exchange for a quick payment. A 2% discount in exchange for a payment within ten days is common.
Customers may accept this offer because it increases their profitability. However, they will accept your offer only if their own cash flow is strong. Consequently, asking for quick payments does not always produce reliable, or lasting, results.
A better solution: payroll financing
A more reliable way to solve this problem is to accelerate your revenues using a payroll funding solution. Payroll funding is a form of invoice factoring designed specifically for the staffing industry.
Invoice factoring improves cash flow by financing open invoices from creditworthy commercial clients. It provides the needed working capital to pay employees and take on new customers. Instead of waiting 30 – 60 days to get paid by your clients, you get immediate funds from the payroll finance company.
When used correctly, you can use invoice factoring to improve your cash flow and grow your company.
How does it work?
Most transactions have a simple structure in which the factoring company finances invoices in two installments. The first installment, the advance, covers about 90% of the gross value of the invoice and is wired to your bank account as soon as the staffing work is complete. Most factors ask to see signed time cards as a backup to the transaction. Your staffing company gets the remaining 10%, less the fees, once the client pays the invoice in full. Fees vary based on the volume and credit quality of your account and range from 1.15% to 3% per 30 days.
Is invoice factoring the right solution for your staffing agency?
Financing invoices should be the right solution for your company if your main problem is that your creditworthy restaurant, hotel, and catering clients are paying slowly. Additionally, your company should:
- Invoice only for completed work hours
- Have invoices free of liens
- Be free of major tax problems
Benefits and advantages
The most important benefit of using factoring (learn pros and cons) is that your working capital improves and you have funds to run your company. Your company can offer trade credit to hospitality customers without worrying about jeopardizing finances. Additionally, the factoring line is designed to be flexible and grow with your business. This flexibility provides the financial support necessary to execute and deliver your growth plans.
These benefits make invoice factoring an ideal option for hospitality staffing companies that have growth opportunities but are being held back by cash flow problems.
Get a factoring quote
We are a leading factoring company and can provide you with a competitive quote. For more information, please get an instant quote or call (877) 300 3258.