How to Get Payroll Funding and Increase Your Staffing Firm’s Cash Flow

Payroll funding options

How many contractors are you funding payroll for? Many staffing firms, just like your’s place temporary workers, and have to fund the payroll for those placements prior to getting paid by their clients. That can dramatically impact cash flow, and in turn, make it more difficult for a firm to grow.

Many times these firms can be fronting payroll dollars for hundreds or even thousands of candidates until their clients pay them! That could be thousands of dollars a week! There are a couple ways firms are getting contractors paid today.

Self Funding

Many staffing companies have a fund of cash designated for paying these temporary workers. This means a set amount of money is tucked away and unable to be used by the business. While it is helping contractors get paid, this capital could be used to hire new staff, invest in technology, expand geographically, or any other growth related initiative. Instead those dollars are essentially useless to the firm’s ability to grow. In some cases there is a limit on the cash available to fund payroll and that directly impacts a firm’s ability to place even more contractors because there is simply not enough cash to fund the payroll for new contractors. This can stunt the growth of many firms. 

Line of Credit Funding

Rather than self funding, some staffing firms choose to use lines of credit to pay temporary workers. This is an option that many firms use when they do not have access to much free cash flow. Although this leaves you with less risk, it is also costly. Staffing and recruiting firms have to worry about paying back all these lines and making sure that nothing gets left out or forgotten, lest they pay huge fees. With the reality that many client organizations pay late, or sometimes do not pay at all, firms are sometimes left with large credit bills that have no revenue coming in to pay them. Additionally, some credit lines have limits, which again can hold a firm back from growing.

Are there any other options?

Employer of Record Solutions

Many are unaware that Employer of Record (EOR) solutions like FoxHire provide payroll funding, in addition to the other services they offer. Since the EOR would be the W2 employer of the contractor, they would be responsible for paying the candidate. They are also responsible for invoicing and collecting from the client for the hours that candidate works. Leveraging an EOR for all those functions enables staffing and recruiting agencies to free up thousands or even hundreds of thousands of dollars of free cash to enable growth. Staffing and recruiting firms would no longer be required to have large amounts of cash on hand, or a line of credit, to take on a new contract placement. Leveraging an EOR could also allow firms to close lines of credit that hold them back, or become too costly and or risky to maintain. 

EORs help staffing and recruiting businesses grow by providing the payroll funding and managing the “behind the scenes” aspects of every contract placement! EORs eliminate your payroll worries, HR functions, and the risk associated with employment law. As a result, staffing and recruiting agencies can make more money while worrying less about the stuff that doesn’t generate revenue.