Operating a growing legal services staffing company can be challenging, especially if you are not well capitalized and are growing quickly. It’s not unusual for expenses to exceed revenues, creating cash flow problems.
This problem is serious because a cash flow shortage could impact your ability to make payroll — your biggest and most important expense. At best, cash flow problems can prevent you from reaching your potential. At worst, they could jeopardize your ability to stay in business.
Net-30 terms can create cash flow problems
For legal staffing agencies, the source of most cash flow problems is the fact that invoices get paid in 30 to 60 days. Most legal office and corporate clients demand the option to pay invoices in 30 days as a condition of doing business. If you don’t provide payment terms, clients may take their business to a competitor.
However, offering net-30 day payment terms can be difficult if your agency does not have a cash reserve to pay for expenses. This payment delay forces you to operate with tight cash flows and puts you at risk for financial problems.
Ask for fast payments
One easy way to solve a cash flow problem is to ask your customers to pay invoices quickly. Some clients offer to pay sooner if you provide a discount in return. A common practice is to offer an early payment discount to clients that pay within 10 days. Customers with a good cash position often take advantage of these discounts in order to increase their profits.
The problem with asking for quick payments is that it does not provide reliable cash improvement, as clients only pay quickly if it’s to their advantage.
Consider payroll financing
You can solve this problem and improve your cash flow by using a payroll financing program. Payroll financing, also known as invoice factoring, is a finance program designed specifically for staffing companies.
Factoring allows you to finance slow-paying invoices. The program provides an advance for your slow-paying accounts receivable, giving you working capital to cover company expenses without having to wait for slow-paying clients.
If used correctly, factoring allows you to offer payment terms to your legal office and corporate clients, without having to worry about slow payments. Learn more about factoring invoices.
How does invoice financing work?
Most invoice financing transactions have a simple structure in which the factor finances your invoices in two installments: the advance and the rebate. The advance covers about 90% of your invoice and is wired to your bank account as soon as the work has been completed. The remaining 10%, less the finance fee, is rebated as soon as your client pays the invoice in full.
Most legal staffing companies that use invoice financing do so on a regular basis to ensure their cash flow needs are always met. To learn more, please read “How does factoring work?”
Advantages over conventional financing
Using an invoice financing line can have a number of advantages over conventional solutions and can often replace a line of credit. Most lines are designed to be flexible and don’t have maximum limits like other programs. Instead, your line can grow alongside your business, providing the financial support to execute your business plan.
Qualifying for this type of funding is easier and faster than qualifying for conventional financing. The most important requirement is to have legal and corporate clients with good commercial credit because their invoices are the collateral for the transaction being funded.
Also, you should invoice only for completed work, your invoices should not have encumbrances, and your company should not have serious tax problems, Most invoice financing lines can be deployed in as little as 5 days.
Rates and cost
The cost of most plans is based on a percentage of the invoice. Rates range from 1.15% to 3.50% per 30 days based on the size of your account and the credit quality of your clients. In many cases, you can negotiate better factoring rates by aligning yourself with a factor experienced in your industry and by keeping good financial records. Here is more information about the cost of invoice factoring.
Get a factoring quote
We are a leading factoring company and can provide you with competitive factoring rates. For more information, please get an instant quote or call (877) 300 3258.