The average invoice terms for staffing companies can vary widely depending on factors such as industry standards, client agreements, and the nature of the staffing services being provided. It is important for staffing firms to understand the implications of invoice frequency and invoice terms prior to entering into an agreement with a client. Otherwise staffing firms could be put into a bad financial position in hopes of generating revenue.
Invoice Frequency:
Due to the heavy financing burden on staffing firms to provide payroll to contractors on a weekly basis, many staffing companies want to issue invoices as quickly as possible. This allows them to be paid back quickly, and ensure proper cash flow. Without quick payment, staffing firms take on the risk of heavy payroll funding.
- Weekly: Invoices are sent on a weekly basis, typically the week after a pay period. As an example, an invoice for last week’s work is sent the following week, usually between Wednesday-Friday, giving payroll teams enough time to gather approved timesheets and expense submissions.
- Bi-Weekly: Invoices are sent on a bi-weekly basis, or every other week. This typically happens the week after two pay periods have passed. As an example, an invoice for the last two week’s worth of work is sent the third week of the month.
- Monthly: This is more common when engaging with MSP, VMS, or government contracts. Larger organizations like monthly consolidated invoicing to keep the volume of invoices down, and simplify their payment processes. This may require staffing firms to break up weeks of pay across months, complicating the invoicing process. Typically an entire month’s worth of work is invoiced on the first week of the following month.
Invoice Payment Terms
Invoice terms refer to the amount of time a client has to pay a bill. Essentially the invoice terms (i.e. Net 30) is the amount of days clients have to pay back the staffing firm. Terms can range widely depending on the type of client, volume, and whether a Managed Service Provider (MSP) or Vendor Management System (VMS) is administering the deal.
- Net 15: This is the most common invoice term in staffing. This gives clients two weeks to pay back invoices. NET 15 is most commonly used in a weekly invoicing schedule.
- Net 30: This is a standard invoice term where the client is expected to pay the invoice within 30 days of the invoice date. Most clients want Net 30, as it’s widely agreed upon across industries as the standard. However, this puts staffing firms at a disadvantage, requiring them to front an entire’s month’s worth of salary prior to being paid back. Leveraging a weekly invoicing frequency helps this issue, but it’s still a concern.
- Net 45 or Net 60: Some staffing companies might extend longer payment terms, such as 45 or 60 days, to their clients if there is significant volume, or a long standing relationship with a client that pays consistently and on time. This gives the client more time to process the invoice and make the payments.
- Net 90+: Most staffing firms want to stay away from Net 90+ invoicing terms. However, there are clients that demand this, and may have leverage due to the volume of staff they need. This is most common in large healthcare systems or in government organizations. These organizations demand Net 90, which usually eliminates many smaller staffing firms from working with them. Typically only medium to large staffing firms can support this type of payment arrangements, unless they leverage an employer of record (EOR), or some type of payroll funding organization.
How an EOR helps with invoicing:
Many staffing firms decide to partner with an Employer of Record (EOR) for invoicing support, rather than doing the invoicing themselves. This type of arrangement helps staffing firms save time and avoid big risks associated with payroll funding, invoicing and collections.
- Payroll funding: Because invoice terms directly impact cash flow, many staffing firms decide to leverage an Employer of Record (EOR) to handle invoicing for them. The EOR provides payroll funding, alleviating cash flow concerns for staffing firms. This allows staffing firms to say “yes” to more projects, which would have previously been too risky for them due to a lack of funding.
- Bad Debt Risk: Additionally, EORs taking on the invoicing for staffing firms allow staffing firms to avoid the risk of client non-payment. EORs like FoxHire take on that risk for agencies, which is not true of all EORs, so be sure to ask about that when evaluating other EORs for support.
- Time Savings: Lastly, EORs take away the tedious burden of collecting timesheets and calculating the proper invoice amounts. This can be especially taxing when working in MSP/VMS relationships. Recruiting and staffing firms should spend their time finding candidates and clients, not doing paperwork. That is where the EOR helps save valuable time and resources.
It’s important for staffing companies to carefully consider their cash flow needs, operational costs, and client relationships when determining invoice terms. Additionally, market norms and industry standards can influence the choice of invoice terms. It’s recommended for staffing companies to clearly communicate their invoice terms with clients and have a well-defined invoicing and collections process to ensure timely payments.
