“Since our partnership with OTR Capital, it has allowed us the freedom of stressing about cash flow each week to make our payroll. We submit our invoices in a timely manner to OTR, and they advance us our funds immediately”Michigan Area Staffing Company
Payroll funding, or sometimes known as factoring, is used by temporary staffing companies to bridge the gap between the time they must make payroll and the time their clients pay on an invoice. Typically staffing companies have payment terms with their clients that can range from 30-45 days after invoicing, with payroll funding, staffing companies can get paid on those invoices immediately. This allows staffing companies to do multiple things to grow their business – from improving infrastructure to paying their employees as often as they need. More staffing companies are providing daily pay to their contractors as an added benefit and payroll funding helps to facilitate that fast turnaround.
We have partnered with Paymint, which is a company that provides software for staffing companies to not only utilize timekeeping software but allows contractors to elect to be paid the same day they finish a shift. Paymint provides a free electronic timecard system, as well as the convenience of direct deposit for your employees. Paymint is also able to integrate with most payroll software systems to make the set-up process easy.
There are essentially three parts to invoice factoring which we will discuss in this article – the advance, the reserve and the factoring rate.
How much do staffing companies get upfront?
When a temporary staffing company submits an invoice with the corresponding timesheets, OTR Capital will immediately fund the staffing company a percentage of the face value of the invoice – This is called the advance. If the invoice submitted is $1000, and the advance rate is 85%, then the advance would be $850. This is the biggest benefit of payroll funding because receiving a percentage of the invoice upfront allows staffing companies to reinvest into the business. One of the advantages of getting a percentage of your invoices up front is that you are now able to pay your contractors as often as you need.
Why do factoring companies hold a reserve?
The second part of payroll funding is the reserve. This is the amount that is held until OTR receives payment from the customer. The reserve protects both OTR Capital and the staffing company against any invoice discrepancies. All factors handle reserves differently, and OTR automatically releases the reserve on the first of every month.
For example, the reserve mainly comes into play when a staffing company invoice says Kimberly worked 35 hours, but the client says Kimberly only worked 30 hours. Because OTR has already provided the staffing company with funds, OTR will use the reserve to offset any invoice discrepancies instead of asking the staffing company to pay back those funds. The reserve helps eliminate any invoice difficulties for the staffing company.
How much does payroll funding cost?
The third part of payroll funding is the factoring rate. This is the amount that factoring companies charge for funding the invoice upfront. All factors handle this differently and OTR takes the rate out upfront when funding the staffing companies on any invoices.
Some factors have a tiered rate program, and others have a flat rate program. Staffing companies typically prefer a program with a flat rate; flat rate means that the rate never increases no matter how long it takes for a client to pay on the invoice, which is what OTR provides. This allows staffing companies to budget down to the penny how much capital is coming in every time they staffing company submits invoices to the factor.
With a tiered rate program, the rate will increase every certain amount of days; some increase daily after an invoice has been outstanding for 30 days or some increase every 15 days after an invoice has been outstanding for 30 days. This can cause problems for staffing companies because most staffing clients never pay within 30 days. When staffing clients do pay, the time it takes for clients to cut the check varies on a month to month basis. With a tiered rate program, a staffing company never knows how much capital they will receive from their invoices because the factor may increase the rate depending on when the invoice is paid.
What is the payroll funding experience like with OTR Capital?
At OTR Capital, we try and make the payroll funding experience as easy as possible and it starts with our hands-on customer service. We are here to help our clients every step of the way starting with a dedicated team for the onboarding process and throughout their tenure with our company. OTR provides our clients with a collections team, that assists our clients with collections and making sure that invoices are paid on time. Our clients can keep track of everything through our innovative online portal that lets you keep track of aging, submitted invoices, and any internal notes about your account.
Payroll funding for staffing companies has become a trusted way to eliminate the headache caused by lack of cash flow as larger contracts are signed and more contractors are placed. This allows you to keep up with increased growth, without incurring any debt. Payroll funding also allows you to reinvest in your business. You are able to expand your reach through marketing, or increase your benefits for your contractors – all because you are taking advantage of the opportunity to get paid NOW.
If you would like more information, please contact StaffingPartners@OTRcapital.com